MALTA Law and Practice Contributed by: Ian Gauci and Cherise Abela Grech, GTG Legal
These principles were enshrined in Malta’s VFA framework, and VFA service providers were required to have systems and procedures in place to identify and curb market abuse. These same principles have been enshrined in MiCA as well. Furthermore, issuers on the MSE are required to abide by the Listing Rules, whereas those listing on the Prospects Market are required to abide by the Prospects MTF Rules. Both of these sets of rules include specific provisions on inside infor - mation and fair disclosure of information to the market. 7. High-Frequency and Algorithmic Trading 7.1 Creation and Usage Regulations Algorithmic trading and high-frequency trading are regulated in Malta under MiFID II. Any entity licensed under the ISA whose head office is in Malta and who is entitled to carry out an activity in an EU or EEA state other than Malta, in exer - cise of a European right, must have the following in place: • effective systems and risk controls suitable to the business it operates, to ensure that its trading systems are resilient and have suf - ficient capacity, are subject to appropriate trading thresholds and limits, and prevent the sending of erroneous orders or the malfunc - tioning of systems in a way that may create or contribute to a disorderly market; • effective systems and risk controls to ensure the trading systems cannot be used for any purpose that is contrary to the Market Abuse Regulation (EU) 596/2014 (MAR) or the rules of the trading venue to which it is connected; and
• effective business continuity arrangements to deal with any failure of its trading systems, to which end it must ensure that its systems are fully tested and properly monitored, and meet the requirements laid down in the relevant regulations. Any service providers utilising such technolo - gies are required to assess whether they need to align and/or are impacted by the upcoming implementation of the EU’s AI Act. 7.2 Requirement to Be Licensed or Otherwise Register as Market Makers When Functioning in a Principal Capacity Firms engaging in algorithmic trading in Malta or another EU or EEA state must notify their competent authority and the European regula - tory authority of the trading venue at which the firm engages in algorithmic trading as a member or participant, where this is not established in Malta. Firms that engage in algorithmic trading and high-frequency trading must also keep sufficient records and make these available to the MFSA. It is also important to note that a person deal - ing on their own account who does not provide any other investment services is exempt from the need for an investment services licence. This exemption applies unless such person is a mar - ket maker or deals on their own account out - side a regulated market or a multilateral trading facility on an organised, frequent and systematic basis by providing a system accessible to third parties to engage in dealings with them. The rules refer to firms that engage in algorithmic trading and high frequency algorithmic trading on a trading venue, which includes regulated markets, MTFs and OTFs.
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