On May 18, 2016, a Commission Delegated Regulation, outlining the RTS on ratios of unexecuted orders to transactions, was adopted by the European Commission. The adopted RTS will supplement the requirements set out in the Markets in Financial Instruments Directive on algorithmic trading for both investments firms and trading venues.
The adopted RTS will impose an obligation on trading venues to calculate the ratio of unexecuted orders to transactions by each of their members and participants for every financial instrument traded under an electronic continuous auction order book or a quote-driven or hybrid trading system. The adopted RTS specify the methodology to be used by trading venues to calculate an order-to-order ratio for each member or participant and for each financial instrument traded. Trading venues must calculate the ratio of unexecuted orders for each of their members or participants at least at the end of every trading session. Such data will be expressed in terms of both volume and number, where volume is expressed as the total volume of orders in relation to the total volume of transactions and number is expressed in terms of the total number of orders in relation to the total volume of transactions. The RTS also provides a list of order types and the relevant methodology to be used when calculating ratios. Where an order type is not listed, the RTS provides that the methodology used should be that which applies to the most similar listed order type. The RTS must still be considered by the European Parliament and the Council of the European Union before they are finalized.
The adopted RTS are available at: https://ec.europa.eu/transparency/regdoc/rep/3/2016/EN/3-2016-2775-EN-F1-1.PDF.
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