CAYMAN ISLANDS Law and Practice Contributed by: Jason Ta, Ben Magahy, Paul Walters and Gemma Walters, Travers Thorp Alberga
7. High-Frequency and Algorithmic Trading 7.1 Creation and Usage Regulations The creation of high-frequency and algorithmic trading strategies is not itself regulated – but the manner in which they are used could be regulat - ed. As an example, a proprietary trader that has created and deploys their own high-frequency or algorithmic trading strategy will not be regulated – however if that same strategy is deployed by an investment fund it will be regulated – as a result of being an investment fund – rather than as a result of the investment fund deploying a high-frequency or algorithmic trading strategy. 7.2 Requirement to Be Licensed or Otherwise Register as Market Makers When Functioning in a Principal Capacity A crypto market maker operating in a principal capacity will generally be outside the scope of the VASP Act. 7.3 Regulatory Distinction Between Funds and Dealers Investment funds will generally be regulated pursuant to the Mutual Funds Act or the Private Funds Act, whereas dealers are generally regu - lated under SIBA. The Cayman Islands regulatory regime does not regard investment funds as market makers. 7.4 Regulation of Programmers and Programming Generally speaking, programmers who develop and create trading algorithms and other elec - tronic trading tools will not be regulated – see for example 7.1 Creation and Usage Regulations . The manner in which the trading algorithms and other electronic trading tools are deployed will determine whether the activity is regulated –
• consumer protection – protecting users from fraud, scams and market manipulation in a peer-to-peer environment poses challenges; • financial stability – peer-to-peer platforms could potentially impact financial stability if large-scale transactions occur outside regu - lated systems; • data privacy concerns – integrating with P2P platforms might raise data privacy issues that need careful handling; and • effective regulation might require international co-operation due to the borderless nature of P2P platforms. 6.7 Rules of Payment for Order Flow There are no specific rules relating to payment for order flow. The default is to the rules dis - cussed in 6.5 Order Handling Rules . 6.8 Market Integrity Principles In relation to virtual asset trading platforms, the authority has the ability under the VASP Act to impose market integrity standards and has issued proposed standards in the context of a proposed conduct of business Rule (not yet finalised). These standards go to the preven - tion of insider dealing, market manipulation and unfair trading practices. As it stands, SIBA has two main focuses when it comes to upholding market integrity principles: preventing the creation of a false or misleading market and preventing insider trading. Commit - ting either of these is an offence under SIBA. SIBA will apply to the provision of virtual asset securities if it falls under the category of “securi- ties investment business” as defined by SIBA.
158 CHAMBERS.COM
Powered by FlippingBook