Automated trading is also known as algorithmic trading and involves the use of computer programmes to enter trading orders where the computer algorithm decides on aspects of execution of the order such as timing, quantity and price of order.

According to the FSA's markets regulatory agenda (May 2010) a specific type of automated trading known as high frequency trading (HFT) was estimated to account for between a third and a half of equity trading volume within the EU.

Following the so called "flash crash" in the US in May this year, the regulatory debate regarding automated trading and in particular HFT has gained momentum. More recently in Europe the European Commission has discussed HFT in its consultation paper on the review of the Markets in Financial Instruments Directive (MiFID) and in the UK the FSA has covered it in a recent speech.

In its consultation paper on the MiFID review the Commission believes that the most significant new risk from automated trading is the threat that it can pose to the orderly functioning of markets. In relation to HFT the Commission is concerned that many HFT firms have dodged the requirement to be authorised under MiFID through the use of the dealing on own account exemption in article 2(1)(d) of the MiFID Level 1 Directive.

In response, the Commission is considering a number of amendments to the MiFID Level 1 Directive including the introduction of a broad definition of automated trading and the introduction of a requirement that all those involved in HFT over a specified quantitative threshold (to be defined at a later date) be authorised as an investment firm. The Commission's proposals have already met with some dissent, mainly from the banks who argue that the proposals to clamp down on HFT could hurt dark pools since they are HFT firms preferred venue of execution.

In the UK, prior to the publication of the MiFID review consultation paper, the FSA published a speech by its Director of Markets, Alexander Justham, in which he discussed evolving market structures and how regulators should keep pace. Whilst the FSA does not perceive anything fundamentally new in the issues raised by HFT it does believe that it presents new challenges to maintaining market integrity, in particular by dint of the speed they involve.

The FSA's key thinking is that as markets evolve new risks arise and that it is important that it acts to take account of them. In order to evaluate the risks the FSA analyses the issues from four perspectives market efficiency, market resilience, market integrity and market fairness.

The FSA also confirmed that it supports the review of the carve-out from authorisation that HFT firms receive under MiFID and believes that it is important for major market players to be afforded a degree of regulatory scrutiny if market orderliness and confidence are not to be threatened. In a similar vein, it is also supporting moves to require an extension of transaction reporting to the trades of firms that are not authorised in the European Economic Area (EEA) so that it has a more complete set of data relating to trading. The FSA has also said that it will conduct further research on HFT, particularly its impact on market liquidity and will also continue to examine the implications for market abuse of trading at high speeds and volumes.

Lesley Harrold, Phil Jelley

Following a consultation held earlier this year, the Pensions Regulator (TPR) has published its latest guidance which covers the use of the six available statutory cessation mechanisms for reducing or avoiding employer debts in multi-employer defined benefit schemes. These are scheme apportionment arrangements, withdrawal arrangements, the restructuring test, the de minimis restructuring test, approved withdrawal arrangements and regulated apportionment arrangements (SCMs). The guidance applies to employers which cease to participate in multi-employer DB Schemes on and from 6 April 2010. Following the consultation, only minor changes have been made.

The guidance sets out TPR's expectations of both employers and trustees and emphasises that it is essential for trustees to understand fully the implications of an employer's departure from a multi-employer defined benefit scheme and the mechanism under which such an exit may be effected. An explanation of each of the six SCMs has been included. In addition, a table has been provided within the guidance which also summarises the key characteristics of each mechanism and the circumstances in which it may be used. Unfortunately, TPR rejected a suggestion made during the consultation process for specific details to be given in the guidance of the criteria used in authorising approved withdrawal arrangements or regulated apportionment arrangements due to the "individual nature of these arrangements". Equally, a request for a section dealing with the tax implications where one employer pays another employer's debt was rejected.

Following a consultation held earlier this year, the Pensions Regulator (TPR) has published its latest guidance which covers the use of the six available statutory cessation mechanisms for reducing or avoiding employer debts in multi-employer defined benefit schemes. These are scheme apportionment arrangements, withdrawal arrangements, the restructuring test, the de minimis restructuring test, approved withdrawal arrangements and regulated apportionment arrangements (SCMs). The guidance applies to employers which cease to participate in multi-employer DB Schemes on and from 6 April 2010. Following the consultation, only minor changes have been made.

The guidance sets out TPR's expectations of both employers and trustees and emphasises that it is essential for trustees to understand fully the implications of an employer's departure from a multi-employer defined benefit scheme and the mechanism under which such an exit may be effected. An explanation of each of the six SCMs has been included. In addition, a table has been provided within the guidance which also summarises the key characteristics of each mechanism and the circumstances in which it may be used. Unfortunately, TPR rejected a suggestion made during the consultation process for specific details to be given in the guidance of the criteria used in authorising approved withdrawal arrangements or regulated apportionment arrangements due to the "individual nature of these arrangements". Equally, a request for a section dealing with the tax implications where one employer pays another employer's debt was rejected.