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Published by: MarketsWiki on Jul 26, 2011
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20July 2011 | ESMA/2011/224
Consultation paper
Guidelines on systems and controls in a highly automated trading environmentfor trading platforms, investment firms and competent authorites
ESMA • 103 rue de Grenelle • 75007 Paris • France • Tel. +33 (0) 1 58 36 43 21 • www.esma.europa.eu
Responding to this paper
ESMA invites comments on all matters in this paper and in particular on the specific questions summa-rised in Annex 1. Comments are most helpful if they:
respond to the question stated;
indicate the specific question to which the comment relates;
contain a clear rationale; and
describe any alternatives ESMA should consider.ESMA will consider all comments received by 
3 October 2011
. All contributions should be submitted online at www.esma.europa.euunder the heading ‘Consultations’ by the aforementioned deadline.
Publication of responses
 All contributions received will be published following the close of the consultation, unless you requestotherwise. Please clearly and prominently indicate in your submission any part you do not wish to bepublicly disclosed. A standard confidentiality statement in an email message will not be treated as a re-quest for non-disclosure. A confidential response may be requested from us in accordance with ESMA’srules on access to documents. We may consult you if we receive such a request. Any decision we make isreviewable by ESMA’s Board of Appeal and the European Ombudsman.
Data protection
Information on data protection can be found at www.esma.europa.euunder the heading ‘Disclaimer’.
 Who should read this paper
This paper is of interest to operators of regulated markets and multilateral trading facilities, investmentfirms executing orders on behalf of clients and/or dealing on own account, particularly when their busi-ness models include automated trading or they provide direct market access or sponsored access to theirclients or eligible counterparties, as well as high frequency traders directly or indirectly accessing Euro-pean markets. It will also be of interest to other users of European trading platforms including managersof pension funds, collective investment schemes and retail investors. National and European trade associa-tions and consumer bodies representing these groups may also be interested in this paper.
Date: 20 July 2011ESMA/2011/224
Table of Contents
 Acronyms used 4I.
Executive Summary 6
Background 7
Organisational requirements for trading platforms and investment firms in a highly automated trading environment 10III.1 Background 10III.2 Draft guidelines on electronic trading systems for trading platformsand investment firms 13a) Trading platforms 13 b) Investment firms 16III.3 Draft guidelines on organisational requirements for trading platforms and investmentfirms to promote fair and orderly trading in a highly automated trading environment 20a) Trading platforms 20 b) Investment firms 23III.4 Draft guidelines on organisational requirements for trading platforms and investmentfirms to prevent market abuse and in particular market manipulation in a highly automated trading environment 26a) Trading platforms 26 b) Investment firms 29IV.
Organisational requirements for direct market access and sponsored access 31
Background 31IV.2 Guidelines on direct market access and sponsored access 33a) Trading platforms 33 b) Investment firms 37 Annex I: Summary of questions 42 Annex II: Text of relevant legislative provisions in MiFID and MAD 44 Annex III: Cost-benefit analysis 50 Annex IV: Review of academic evidence on the effects of high frequency trading andalgorithmic trading on market quality 62 Annex V: Feedback on the call for evidence 67 Annex VI: Summary of the responses to a targeted fact-finding on micro-structural issues 76 Annex VII: Draft guidelines 92

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