CEU Electronic Theses and Dissertations, 2020
| Author | Pratt, Bonny |
|---|---|
| Title | Trading Limits Risk Management in an Electronic Trading World (MIFID II) |
| Summary | Algorithmic trading is using computer code to predefined behavior for executing orders by defining trading instructions (Chen, James, 2020) . From 2008 to 2018, global markets were recovering from one of the largest financial crisis in 2008 since The Great Depression. Investors were struggling with regaining confidence in the markets, as well as adjusting to rapid changes in technology resulting from increased electronic trading. With the adoption of electronic trading, more retail investors were able to join the market as lower costs resulted from economies of scale with increased overall market volumes. The shift toward automated and algorithmic trading also resulted in more frequent and large impact trading errors. Some of the trading errors, such as flash crashes or fat fingers, were all too significant to ignore. Markets in Financial Instruments Directive (MIFID II) was introduced to restore investor confidence by providing consumer protection with trading transparency and controls. Its impact included all financial institutions - whether banks, funds, trading venues, brokers, or pension funds - all players who trade in European Union. In reality, MIFID II was an ambitious financial legislation to modernize E.U. financial institutions to compete with the United States (Stafford, Phillip, 2017). MIFID II legislation became effective on Jan 3, 2018, however most firms prepared for its implementation for well over a year prior to 2018 by implementing enhanced trading software and infrastructure. I moved to Budapest, Hungary in late 2016 and my main project focus for 18 months after my arrival was working on MIFID II changes and the support needed at the firm. More specifically, my responsibilities included building out the firm’s existing trading controls to align with the regulatory requirements outlined in MIFID II. While I am in the Technology department, I worked with traders and risk managers to interpret and implement MIFID II rules in our trading systems. This Capstone paper describes the general background drivers related to MIFID II, as well as, my continued work at the firm related to regulatory changes. |
| Supervisor | Szilagyi, Peter |
| Department | Economics MSc |
| Full text | https://www.etd.ceu.edu/2020/pratt_bonny.pdf |
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