FRANCE Law and Practice Contributed by: Sylvain Clavé and Germain Chaux, Clavé Avocat
7. High-Frequency and Algorithmic Trading 7.1 Creation and Usage Regulations The applicable regulatory framework for algorithmic trading is primarily governed by MiFID II and MAR. Regulated firms engaging in algorithmic trading are required to implement adequate and effective internal controls, to ensure that their trading systems cannot be used for purposes contrary to MAR. ISPs are required to notify the AMF that they use algo - rithmic trading and to provide detailed information on their parameters and risk-monitoring arrangements put in place. There are no specific rules that differenti - ate between underlying asset classes for the purpose of algorithmic trading: the same regulatory framework applies irrespective of the type of financial instrument traded. Under French law, entities dealing on own accounts through algorithmic trading systems must be licensed as ISPs (even where they do not act on behalf of or for the accounts of clients). There is no separate licensing category dedicated to “market makers” as such. 7.3 Regulatory Distinction Between Funds and Dealers Under French law, management companies of col - lective investment undertakings (UCITS and AIFs) are not classified as investment firms ( entreprise d’investissement ) and fall outside the scope of the 7.2 Requirement To Be Licensed or Registered as a Market Maker When Functioning in a Principal Capacity
were only considered lawful under French law if they met three strict cumulative requirements: ensuring full transparency for clients, enhancing the quality of the service rendered, and complying with the duty to act in the client’s best interest. The regulatory landscape has shifted significantly fol - lowing the February 2024 MiFIR review, which intro - duced a general prohibition on PFOF under Article 39a to address concerns over market integrity and retail investor protection. While this ban will be fully enforceable across the EU starting 1 July 2026, France has declined to exercise the temporary exemption that would have allowed its domestic firms to continue these practices. Therefore, investment firms in France must ensure their venue selection is driven strictly by best-execution obligations and the management of conflicts of interest, as the industry transitions towards a complete phase-out of incentive-based routing. 6.8 Market Integrity Principles Market Integrity in France is governed by MAR and the Market Abuse Directive (MAD), which establish a harmonised framework to prevent and sanction illicit behaviors in the financial ecosystem. Market abuse is categorised into three core offences: • insider dealing (which involves transactions exe - cuted based on non-public price-sensitive informa - tion); • the unlawful disclosure of inside information; and • market manipulation (which involves actions that give false or misleading signals to the market). To ensure transparency, the system relies on a dual- track architecture of prevention and enforcement. On the preventative side, market participants are required to maintain insider lists and immediately report any suspicious activity via Suspicious Transaction and Order Reports (STORs) to the AMF. Furthermore, issu - ers must disclose inside information directly concern - ing them to the public as soon as possible. On the enforcement side, to ensure that all partici - pants operate on a level playing field, the system relies on a dual-track approach, enabling the AMF to impose administrative sanctions, while reserving criminal pen - alties – through the judiciary – for serious violations.
provisions governing algorithmic trading. 7.4 Regulation of Programmers and Programming
Programmers who design and develop trading algo - rithms or other electronic trading tools are not regu - lated as such under French or EU financial regulation: the applicable rules target the regulated entities that use these tools.
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