Cap. 345 Art. 4FSystem resilience, circuit breakers and electronic trading.

(1) A regulated market shall establish and maintain its operational resilience in accordance with the requirements laid down in Chapter II of the DORA Regulation to ensure its trading systems are resilient, have sufficient capacity to deal with peak order and message volumes, are able to ensure orderly trading under conditions of severe market stress, are fully tested to ensure such conditions are met and are subject to effective business continuity arrangements, including ICT business continuity policy and plans and ICT response and recovery plans established in accordance with Article 11 of the DORA Regulation, to ensure continuity of its services if there is any failure of its trading systems.

(2) A regulated market shall have in place:

(a) written agreements with all investment firms pursuing a market making strategy on the regulated market;

(b) schemes to ensure that a sufficient number of investment firms participate in such agreements which require them to post firm quotes at competitive prices with the result of providing liquidity to the market on a regular and predictable basis, where such a requirement is appropriate to the nature and scale of the trading on that regulated market.

(3) The written agreement referred to in sub-article (2) shall at least specify:

(a) the obligations of the investment firm in relation to the provision of liquidity and where applicable any other obligation arising from participation in the scheme referred to in sub-article (2)(b);

(b) any incentives in terms of rebates or otherwise offered by the regulated market to an investment firm so as to provide liquidity to the market on a regular and predictable basis and, where applicable, any other rights accruing to the investment firm as a result of participation in the scheme referred to in sub-article (2)(b).

(4) A regulated market shall monitor and enforce compliance by investment firms with the requirements of such binding written agreements. The regulated market shall inform the competent authority about the content of the binding written agreement and shall, upon request, provide all further information to the competent authority necessary to enable the competent authority to satisfy itself of compliance by the regulated market with sub-article

(3) and this sub-article.

(5) A regulated market shall have in place effective systems, procedures and arrangements to reject orders that exceed pre-determined volume and price thresholds or are clearly erroneous.

(6) A regulated market may temporarily halt or constrain trading in emergency situations or in the event of a significant price movement in a financial instrument on such market or a related market during a short period and, in exceptional cases, it may cancel, vary or correct any transaction:

Provided that such regulated market shall ensure that the parameters for halting or constraining trading are appropriately calibrated in a way which takes into account the liquidity of different asset classes and sub-classes, the nature of the market model and the types of users and is sufficient to avoid significant disruptions to the orderliness of trading.

(7) A regulated market shall report the parameters for halting trading and any material changes to those parameters to the competent authority in a consistent and comparable manner. The competent authority shall in turn report them to ESMA.

(8) Where a regulated market which is material in terms of liquidity in that financial instrument halts trading, in any Member State or EEA State including Malta, that trading venue shall have the necessary systems and procedures in place to ensure that it will notify the competent authority or European regulatory authorities, as the case may be, in order for them to coordinate a market-wide response and determine whether it is appropriate to halt trading on other venues on which the financial instrument is traded until trading resumes on the original market.

(8a) A regulated market shall disclose publicly on its website information about the circumstances leading to the halting or constraining of trading and the principles for establishing the main technical parameters used to do so.

(8b) Where a regulated market does not halt or constrain trading as referred to in sub-article (6), despite the fact that a significant price movement in a financial instrument or related financial instruments has led to disorderly trading conditions on one or more markets, the Authority may take appropriate measures to re-establish the normal functioning of the markets, including giving such directives as referred to in paragraphs (h) to (k) of article 15(2) of the Investment Services Act.

(9) A regulated market shall have in place effective systems, procedures and arrangements, including:

(a) such systems that require members or participants to carry out appropriate testing of algorithms and providing environments to facilitate such testing in accordance with the requirements laid down in Chapters II and IV of the DORA Regulation, in order to:

(i) ensure that algorithmic trading systems cannot create or contribute to disorderly trading conditions on the market; and

(ii) manage any disorderly trading conditions which do arise from such algorithmic trading systems; and

(b) systems to limit the ratio of unexecuted orders to transactions that may be entered into the system by a member or participant, in order to:

(i) be able to slow down the flow of orders if there is a risk of its system capacity being reached; and

(ii) limit and enforce the minimum tick size that may be executed on the market.

(10) A regulated market that permits direct electronic access shall have in place effective systems procedures and arrangements to ensure that members or participants are only permitted to provide such services if they are investment firms authorised under MiFID or credit institutions authorised under the CRD, that appropriate criteria are set and applied regarding the suitability of persons to whom such access may be provided and that the member or participant retains responsibility for orders and trades executed using that service in relation to the requirements of MiFID.

(11) A regulated market shall also set appropriate standards regarding risk controls and thresholds on trading through such access and be able to distinguish and, if necessary, stop orders or trading by a person using direct electronic access separately from other orders or trading by the member or participant.

(12) A regulated market shall have arrangements in place to suspend or terminate the provision of direct electronic access by a member or participant to a client in the case of non-compliance with sub-articles (10) and (11).

(13) A regulated market shall ensure that its rules on co-location services are transparent, fair and non-discriminatory.

(14) A regulated market shall ensure that its fee structures including execution fees, ancillary fees and any rebates are transparent, fair and non-discriminatory and that they do not create incentives to place, modify or cancel orders or to execute transactions in a way which contributes to disorderly trading conditions or market abuse. In particular, a regulated market shall impose market making obligations in individual shares or a suitable basket of shares in exchange for any rebates that are granted.

(15) A regulated market shall be allowed to adjust its fees for cancelled orders according to the length of time for which the order was maintained and to calibrate the fees to each financial instrument to which they apply.

(16) A regulated market may be allowed to impose a higher fee for placing an order that is subsequently cancelled than an order which is executed and to impose a higher fee on participants placing a high ratio of cancelled orders to executed orders and on those operating a high-frequency algorithmic trading technique in order to reflect the additional burden on system capacity.

(17) A regulated market shall be able to identify, by means of flagging from members or participants, orders generated by algorithmic trading, the different algorithms used for the creation of orders and the relevant persons initiating those orders. That information shall be available to the competent authority and European regulatory authorities upon request.

(18) Upon request by the competent authority, a regulated market shall make available thereto, data relating to the order book or give the competent authority access to the order book so that it is able to monitor trading.