NETHERLANDS Law and Practice Contributed by: Roderik Vrolijk, Rogier Raas, Ingrid Viertelhauzen and Maarten Weekenborg, Stibbe
6.7 Rules of Payment for Order Flow Payment for order flow (PFOF) is prohibited in the Netherlands at both the national and EU level. At the national level, investment firms are prohibited from, directly or indirectly, providing or receiving any com - mission in relation to the provision of an investment service or ancillary service to a retail investor. This means that a Dutch investment firm may not receive payments for executing or forwarding client orders. At the EU level, MiFIR prohibits investment firms acting on behalf of retail clients or opt-in professional clients from receiving any fee, commission or non-monetary benefit from any third party for executing or forward - ing client orders to a particular execution venue. Both prohibitions apply concurrently and are subject to cer - tain exceptions. 6.8 Market Integrity Principles The Market Abuse Regulation (MAR) establishes a regulatory framework aimed at preserving market integrity and enhancing investor protection and con - fidence in the financial markets. The MAR sets out rules on insider dealing, unlawful disclosure of inside information, market manipulation and other measures to prevent market abuse. The MAR applies, amongst others, to financial instruments admitted to trading on a regulated market, MTF or OTF. Similarly, MiCAR aims to ensure the integrity of the crypto-asset markets and confidence therein. To that end, MiCAR also contains rules concerning the unlaw - ful disclosure of inside information, insider dealing and market manipulation in relation to crypto-assets. 7. High-Frequency and Algorithmic Trading 7.1 Creation and Usage Regulations High frequency trading (HFT) is regulated as a subset of algorithmic trading under MiFID II, as implemented in the Wft. MiFID II requires investment firms engaged in algorithmic trading to maintain effective systems and risk controls, including pre- and post-trade con - trols, algorithm testing, annual self-assessments, kill functionality and real-time monitoring.
Proprietary traders using HFT techniques cannot rely on the exemptions otherwise available under MiFID II and must obtain an AFM licence. HFT firms must also notify the AFM and relevant trading venue com - petent authorities. Trading venues permitting algo - rithmic trading must ensure system resilience, imple - ment circuit breakers and maintain order-to-trade ratio mechanisms. The MAR equally applies to HFT, prohibiting manipula - tive strategies such as spoofing and layering regard - less of the technology used. The regulatory framework does not differentiate between asset classes at the level of the core obli - gations. However, certain calibrations vary by asset class in practice: tick size regimes apply specifically to equity and equity-like instruments, and ESMA has proposed developing technical standards to set out the maximum order-to-trade ratio, calibrated per asset class. Dutch law does not provide for a standalone market maker licence or registration. HFT firms trading in a principal capacity must be licensed as investment firms by the AFM under MiFID II, as implemented in the Wft. Under MiFID II, the proprietary trading exemp - tion no longer applies to firms using HFT techniques or acting as market makers. This applies across all asset classes, including derivatives. 7.2 Requirement To Be Licensed or Registered as a Market Maker When Functioning in a Principal Capacity Where a licensed investment firm uses algorithmic trading to pursue a market-making strategy, MiFID II imposes additional obligations. The firm must provide liquidity continuously during a specified proportion of the trading venue’s trading hours, enter into a bind - ing written market-making agreement with the venue, and maintain effective systems and controls to ensure compliance. 7.3 Regulatory Distinction Between Funds and Dealers Dutch and EU regulation distinguishes between pro - prietary dealers and funds. Proprietary trading firms using HFT must be licensed as investment firms under
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