HUNGARY Law and Practice Contributed by: Pál Rahóty, Lakatos, Köves & Partners
pre-trade limits, real-time monitoring, kill switches and testing procedures to prevent disorderly mar - kets. Firms engaged in high-frequency trading (HFT) techniques must notify the regulator (MNB), maintain detailed records of algorithms and order data, and ensure systems are resilient and capacity-tested. Trading venues must also have circuit breakers and monitoring systems in place. These obligations apply regardless of whether the trader is a traditional bank or fintech firm. Different asset classes are subject to different regimes. For traditional financial instruments (shares, bonds, derivatives, ETFs and security tokens qualifying as financial instruments), the full MiFID II algorithmic trading framework applies. For crypto-assets, MiCA does not replicate the detailed MiFID HFT regime, but it imposes general conduct, systems resilience and market abuse controls on CASPs operating trading platforms. Fully decentralised trading protocols with - out an identifiable operator may fall outside direct authorisation requirements, though market abuse and AML concerns remain relevant. In short, algorithmic trading in regulated securities markets is tightly gov - erned under MiFID II, while crypto trading is subject to a lighter but developing regime under MiCA. 7.2 Requirement To Be Licensed or Registered as a Market Maker When Functioning in a Principal Capacity In Hungary, a firm engaging in high-frequency or algo - rithmic trading in a principal (own-account) capacity does not need a separate “market-maker licence”, but it will typically need to be authorised as an investment firm or credit institution under MiFID II, unless a spe - cific exemption applies. Dealing on own account as a business is itself a regulated activity. Where a firm performs formal market-making on a regulated market, MTF or OTF (ie, providing continu - ous liquidity under a venue agreement), it must com - ply with the venue’s market-making rules and MiFID II organisational, capital and risk-control requirements. Firms using algorithmic or HFT techniques must notify the MNB, implement robust pre-trade controls, moni - toring systems and kill switches, and maintain detailed records of their algorithms and orders.
In short, there is no standalone market-maker reg - istration regime, but principal HFT activity generally requires full investment firm authorisation and compli - ance with enhanced governance and risk standards. 7.3 Regulatory Distinction Between Funds and Dealers Hungarian and EU regulation distinguishes between funds and dealers (investment firms) engaging in HFT or algorithmic trading, even though both may use similar technologies. Dealers/investment firms trading on own account (including HFT strategies) fall directly under MiFID II. Dealing on own account is a regulated activity, requiring authorisation as an investment firm or credit institution (unless a narrow exemption applies). These firms are subject to detailed organisational, capital, best execution, market conduct and algorithmic trad - ing controls (eg, pre-trade risk limits, kill switches, testing and monitoring obligations), and are super - vised by the MNB. Funds – eg, undertakings for collective investment in transferable securities (UCITS) or alternative invest - ment funds (AIFs) – are regulated under the UCITS Directive or AIFMD, and typically do not require a separate MiFID licence themselves. Instead, the fund manager (management company or AIFM) is the regu - lated entity. If a fund engages in algorithmic or high- frequency strategies, the manager must ensure robust risk management, liquidity management and compli - ance systems, but the fund is not treated as a dealer unless it independently performs regulated investment services. If the manager executes trades directly as a dealer, MiFID obligations may apply alongside fund regulation. 7.4 Regulation of Programmers and Programming In Hungary (under EU MiFID II rules), programmers themselves are not separately licensed or regulated simply because they write trading algorithms. Regula - tion attaches to the investment firm or credit institution that deploys the algorithm in live trading, not to the individual developer.
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