SWEDEN Law and Practice Contributed by: Robert Karlsson, Helena Rönqvist, Caroline Landerfors and Vilma Slättegård, Magnusson Law
7. High-Frequency and Algorithmic Trading 7.1 Creation and Usage Regulations All financial instruments, regardless of the asset class, are subject to the SMA, which contains the main Swedish rules relating to high-frequen - cy and algorithmic trading. An investment firm that applies algorithmic trad - ing must inform the SFSA. In addition, investment firms that engage in algorithmic trading must have effective systems and risk controls that are adapted to the specif - ic trading operation, and which are sufficient to ensure, inter alia, that the trading systems can - not be used for purposes contrary to the MAR or to the rules of any trading platform to which the company is affiliated. Algorithmic traders must also have effective business continuity arrange - ments in place to deal with disruptions to their trading systems and shall ensure that those sys - tems are fully tested and adequately monitored. Companies engaged in algorithmic trading must document the measures they have taken in accordance with the above-mentioned sys - tems and risk measurements so that the SFSA can monitor the company’s compliance with the SMA. Further requirements apply to investment firms that use algorithmic high-frequency trading. 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 as part of a market-making strategy is subject to certain rules in the SMA.
service and does not impair the investment firm’s ability to act honestly, fairly and professionally in accordance with the best interest of the client. Further, prior to the provision of the service, the investment firm must also disclose the existence, nature and amount of such payment or benefit. Portfolio managers and independent investment advisors are subject to a complete ban under the SMA on receiving third-party commission. 6.8 Market Integrity Principles Market abuse violations are regulated by the EU Market Abuse Regulation (MAR) and the Swedish Market Abuse Penalties Act. These Acts contain, among other things, prohibitions against insider dealing, market manipulation and unlawful disclosure of inside information. Fur - thermore, MAR contains requirements for public disclosure of inside information, as well as rules for insider lists and the reporting of managers’ transactions. MAR and the Market Abuse Pen - alties Act are supervised by the SFSA and the Swedish Economic Crime Authority ( Ekobrotts- myndigheten EBM). The Swedish Securities Council (the “Council” ; Aktiemarknadsnämnden ) has been instituted to promote good practice on the Swedish stock market and does so through rulings, advice and information. The Council is part of the self- regulation system on the stock market under The Association for Generally Accepted Princi - ples in the Securities Market. When the Council interprets what constitutes good practice in a specific matter, it often involves supplementing an existing regulatory framework by assessing aspects that are not explicitly regulated already or issuing rulings on situations for which no reg - ulation currently exists.
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