The Autorite des Marches Financiers’ (AMF) Enforcement Committee handed down a penalty of €5 million to Virtu Financial Europe for its role in market manipulation as well as circumventing Euronext’s market rules – at the same time, the regulator also fined Euronext Paris for the same amount for effectively failing to meet its obligation to operate with neutrality and impartiality, according to a regulatory statement.
Virtu Financial Europe, formerly Madison Tyler Europe, is a high-frequency trading company (HFT), which was previously proprietary trading on Euronext as well as four alternative trading platforms. However, after a lengthy analysis of Virtu’s algorithms used and the way in which its trading strategy was implemented, the Enforcement Committee found that the Virtu’s strategy had undergone several anomalies.
First, the group’s activity yielded an unusually high volume of messages, which consisted of placing, amending, and cancelling orders, relative to the number of trades actually executed by it and by other participants. On Euronext Paris for example, it accounted for a total of 62.7% of all messages and 2% of trades.
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Moreover, the group was found to have engaged in extremely rapid trade orders with 66% of them on Euronext’s platform lasting less than one second and 25% lasting less than 10 milliseconds. This was combined with the fact that an unusual frequency of very large volumes of orders were also cancelled by the group before they could be executed, often times at the best bid or offer prices, which distorted the representation of order books for market participants.
However, the AMF issued a ruling granting this exemption to allow Madison Tyler Europe/Virtu to improve its algorithms, “given the absence of any predefined programme and non-publicly, while it had announced to its members that no Liquidity Provider would be able to trade in the securities in which it was trading, with no compensation, no limit as to duration and, ultimately, for a period of 16 months,” noted the regulator.
Conversely, Euronext had also not operated with neutrality and impartiality, according to the AMF, which had breached general provisions of the AMF’s Regulation. Both groups were consequently fined a total of €5 million.