HUNGARY Law and Practice Contributed by: Pál Rahóty, Lakatos, Köves & Partners
6.5 Order Handling Rules Order handling rules apply in Hungary where a fintech provides regulated investment services under MiFID II. Firms receiving, transmitting or executing client orders must comply with best execution, fair and prompt order handling, transparent execution policies, prop - er order allocation, conflict management and record- keeping requirements. Similar (though separate) conduct standards apply to CASPs under MiCA. If a platform does not perform regulated order execution activities, these rules do not apply, but classification is based on substance rather than form. 6.6 Rise of Peer-to-Peer Trading Platforms While P2P-style trading and lending experiences exist for Hungarian users, most operate within regulated frameworks (ECSPR/MiCA/MiFID) rather than as infor - mal or unlicensed peer-to-peer networks. 6.7 Rules of Payment for Order Flow Payment for order flow (PFOF) is heavily restricted in Hungary and through the EU. Under MiFID II induce - ment and best-execution rules, investment firms must act honestly, fairly and professionally in the best interests of clients and take all sufficient steps to obtain the best possible result. PFOF creates an inherent conflict of interest between execution qual - ity and broker remuneration. In practice, several EU supervisors – and European Securities and Markets Authority (ESMA) guidance – have treated PFOF as incompatible with best execution and inducement rules for retail clients. The EU has now moved towards an effective ban on PFOF for retail order flow under the Retail Investment Strategy reforms (with limited transitional arrangements in some member states). As a result, Hungarian investment firms supervised by the MNB generally cannot rely on PFOF as a core revenue model for retail trading. This significantly affects commission-free trading apps and robo-brokers. Unlike in the USA, Hungar - ian/EU fintech brokers cannot typically fund “zero- commission” models through PFOF arrangements. Instead, they rely on transparent commissions, FX spreads, subscription fees, securities lending or other disclosed revenue streams. Any execution arrange - ments must be documented in an execution policy,
conflicts must be managed and remuneration struc - tures must not impair compliance with best execution. For crypto-asset trading under MiCA, similar conflict- of-interest and fair pricing standards apply, although the legal framework differs from MiFID. 6.8 Market Integrity Principles In Hungary, trading in financial instruments is governed by the MAR, which applies directly and is enforced by the MNB. The core principles are to ensure fair, trans - parent and orderly markets and to prohibit conduct that distorts price formation or exploits non-public information. The main prohibitions are: • insider dealing – trading (or attempting to trade) while in possession of inside information; • unlawful disclosure of inside information – ie, improperly sharing price-sensitive, non-public information; and • market manipulation – engaging in transactions or disseminating information that gives false or mis - leading signals as to supply, demand or price. Issuers whose instruments are admitted to trading must also comply with ongoing disclosure obligations, including prompt publication of inside information (unless validly delayed), maintenance of insider lists and reporting of managers’ transactions. Investment firms and trading venues must have monitoring and reporting systems in place. For crypto-assets, MiCA introduces a parallel market abuse regime for in-scope tokens admitted to trading on crypto platforms, applying similar insider trading and market manipulation prohibitions adapted to the crypto environment. 7. High-Frequency and Algorithmic Trading 7.1 Creation and Usage Regulations In Hungary, high-frequency and algorithmic trading in financial instruments is regulated under MiFID II, which contains specific rules for firms engaging in algorithmic trading. Investment firms using algorithmic systems must have robust governance, risk controls,
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