LITHUANIA Law and Practice Contributed by: Donatas Šliora and Marius Matiukas, ADON legal
should make this available to the Bank of Lithu - ania upon its request. MiFID II introduced various regulatory require - ments across asset classes, including trans - parency, risk management and reporting obli - gations, which affect brokers using algorithmic trading and HFTs; however, specific rules for different asset classes in regard to algorithmic trading do not apply. 7.2 Requirement to Be Licensed or Otherwise Register as Market Makers When Functioning in a Principal Capacity An investment firm that engages in algorithmic trading is considered to be pursuing a market- making strategy when, as a member or partici - pant of one or more trading venues, its strategy, when dealing on its own account, involves post - ing firm, simultaneous two-way quotes of com - parable size and at competitive prices relating to one or more financial instruments on a single trading venue or across different trading venues, with the result of providing liquidity on a regular and frequent basis to the overall market. While an investment firm is not automatically required to register as a market maker, if the bro - ker is engaged in algorithmic trading that seeks to pursue a market-making strategy, based on the Law on Markets in Financial Instruments, taking into account the liquidity, size and nature of the market in question and the characteristics of the financial instrument traded, it must adhere to certain requirements – ie, it must: • continuously participate in market making during the trading hours of the trading venue (except in exceptional circumstances) in order to ensure regular and predictable liquidity of the trading venue;
• enter into a binding written agreement with the trading venue, setting out at least the duties of the market maker that relate to the duties referred to in the item above; and • have effective systems and controls in place to ensure that it can meet its obligations under the agreement with the trading venue at any time. 7.3 Regulatory Distinction Between Funds and Dealers Rules regarding HFTs and algorithmic trading are applicable to investment firms (and banks providing investment services). Should they decide to engage in algorithmic trading or HFTs, the investment funds are not subject to specific rules. 7.4 Regulation of Programmers and Programming While programmers and programming are not directly regulated (under MiFID II and the Law on Markets in Financial Instruments), financial service providers are required to have in place such information technology mechanisms as are compliant with the current regulations in regard to transparency, AML/CFT, sanctions compliance, fraud prevention, data protection and other strictly regulated fields. Programmers should also account for the soon-to-be applica - ble DORA. If the financial service provider decides to out - source the programming of the algorithmic trad - ing tool, it should assess all possible risks fol - lowing such a decision as well as ensure close monitoring of the third-party programmer. As the financial service provider is a participant in a financial market, it is required to comply with outsourcing requirements laid out by the Bank of Lithuania in accordance with the guidelines set out by the European Banking Authority. Since
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