On April 25, the European Commission (EC) adopted its second delegated act to supplement the amended and restated Markets in Financial Instruments Directive (MiFID II). The delegated act is in the form of a regulation (Delegated Regulation) and sets out organizational requirements and operating conditions for investment firms under MiFID II.

Chapter I of the Delegated Regulation

Exemptions
Confirms in what circumstances an investment service will be provided in an “incidental manner”, for the purposes of exemptions from MiFID II;

Algorithmic trading

Clarifies that for the purposes of the algorithmic trading, a system will be considered as having no- or limited-human intervention where for any order or quote, “an automated system makes decisions at any of the stages of initiating, generating, routing or executing orders or quotes according to pre-determined parameters”;

High-frequency trading

Defines “high message intraday rate” as consisting of the submission on average of either (1) at least two messages-per-second with respect to any single financial instrument traded on a trading venue, or (2) at least four messages-per-second with respect to all financial instruments traded on a trading venue; and

Direct electronic access

Clarifies that a person shall be considered not capable of electronically transmitting orders directly to a trading venue where that person cannot exercise discretion as to the exact fraction of a second of order entry and the lifetime of the order within that timeframe.

Chapter II of the Delegated Regulation sets out detailed organizational requirements, including systems and procedures to maintain confidential information, business continuity and accounting policies, risk management policies, remuneration policies, personal transactions, and a requirement to establish a permanent and independent compliance function (among others).

The European Council and European Parliament will consider the Delegated Regulation, and once formally approved, the Delegated Regulation will go into effect 20 days following its publication in the Official Journal of the European Union.