MiFID II introduces new laws addressing various structural and other issues relating to the operation of trading venues. Market making activity on such venues will now be subject to extensive regulation. This includes a commitment by the market maker to the trading venue to make available prices for particular minimum times and to abide by various related systems and controls obligations. Trading venues will also be required to have agreements with their market makers and to ensure that any incentive arrangements are fair and non-discriminatory. There are new rules that will apply to market makers that use algorithmic trading, including high frequency trading strategies.

Introduction -

This memorandum discusses the regulation of market making under the new Markets in Financial Instruments Directive (“MiFID II”)1 and the Markets in Financial Instruments Regulation (“MiFIR”)2. It is one in a series of client notes that will discuss the changes that the revision of the original MiFID will bring about come 3 January 2017.