CZECH REPUBLIC Law and Practice Contributed by: Stanislav Šimek, Vojtěch Mlynář and Jakub Dostál, BADOKH
• unlawful disclosure of inside information – com - municating inside information to another person outside of the recognised exceptions. Both frameworks impose positive obligations, such as mandatory disclosure of inside information by issuers and a requirement for persons arranging or executing transactions to have effective measures in place to prevent, detect and report market abuse. Crypto-assets that fall outside MiCA’s scope and do not qualify as financial instruments are not subject to any specific market abuse regime. 7. High-Frequency and Algorithmic Trading 7.1 Creation and Usage Regulations Creation and usage of algorithmic and high-frequency trading in financial instruments are regulated primarily through the CMUA and through Delegated Regulation (EU) 2017/589. For crypto-assets (that are not considered financial instruments) and commodities, there is no specific regulation addressing algorithmic trading. Algorithmic Trading of Financial Instruments In the context of algorithmic trading, investment firms and operators of regulated markets are subject to reg - ulation. Other persons using an algorithmic trading system on their own account do not require a licence solely on this basis. An investment firm engaged in algorithmic trading must in particular: • implement effective systems and risk controls; • fully test and continuously monitor its systems; • have robust business continuity recovery plans in place; • notify the competent authority and the relevant trading venue that it engages in algorithmic trading; and • comply with reporting obligations to the CNB and maintain records to monitor compliance.
Organisers of regulated markets whose trading sys - tems are used by algorithmic traders must implement effective systems to ensure that algorithmic systems cannot create trading conditions that disrupt orderly market functioning, and to deal with any such disrup - tive conditions if they do arise. All persons engaging in high-frequency trading must hold a licence from the CNB. A market maker under the CMUA is an entity that con - tinuously participates in financial markets and trades on its own account by buying and selling financial instruments with its own capital at self-determined prices. The use of algorithmic trading alone does not automatically qualify as market making. Any person employing algorithmic trading while act - ing as a market maker must hold a licence issued by the CNB. 7.2 Requirement To Be Licensed or Registered as a Market Maker When Functioning in a Principal Capacity Beyond the general obligations applicable to all investment firms, a market maker using algorithmic trading must, in particular, pursue its market-making activity continuously and enter into a written agree - ment with the trading venue operator specifying the obligations for providing liquidity and the associated remuneration. 7.3 Regulatory Distinction Between Funds and Dealers Dealers must hold an investment firm licence and are therefore subject to the algorithmic trading obliga - tions. Funds themselves are subject to the algorithmic trad - ing regime under the CMUA only if they are members of or participants in regulated markets or multilateral trading facilities. The main difference between these models is that a dealer typically executes individual trades based on a client’s specific preferences or instructions. A fund manager, on the other hand, makes collective invest -
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