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French regulator fines firms €5 million for high-speed trading breaches


French regulator Autorité des Marchés Financiers (AMF) has fined high-speed trading firm Virtu Financial Europe and stock-exchange operator Euronext Paris €5 million each for ignoring market rules. 

Virtu Financial Europe was fined for "market manipulation and ignoring Euronext market rules", while Euronext Paris failed "to meet its obligation to operate with neutrality and impartiality", AMF said in a statement.

In 2009 Virtu Financial Europe, then called Madison Tyler Europe, was involved in proprietary trading on Euronext Paris and four other trading platforms.

"The company’s strategy consisted of identifying the best bid or offer price for a security on a platform – usually Euronext – and then placing four passive orders at a slightly different price on four other platforms; as soon as one of the orders was executed, giving rise to a gain equal to the difference in price, it would then cancel the remaining three orders," AMF said.

"These operations were carried out within a few milliseconds and the algorithm used by Madison Tyler Europe constantly placed and cancelled orders in the various order books in line with the best bid or offer prices," it said.

After analysing the algorithm used, alongside the way the strategy was implemented and the impact on the market, the AMF found that Madison Tyler Europe's trading practices, involving "huge volumes of extremely rapid messages in the order books of the 27 securities [involved]" gave false or misleading indications about to the supply and demand for those financial instruments. This constituted a market manipulation, and was in breach of the Euronext market rules, it said.

Euronext Paris then exempted Madison Tyler from penalties it should have imposed for "exceeding the ratio of the number of orders placed to the number of trades executed in a given security on a given day", the AMF said.

That exemption allowed Madison Tyler Europe to implement a trading strategy that could give rise to a "disorderly market, especially given that other market members were not in a position to understand that the intense activity thus generated in order books was caused by a single participant", AMF said.

Euronext said that it will appeal the ruling, which it described as "totally disproportionate and completely anachronistic".

"Euronext contests the claim that it failed to meet its professional obligations and favoured one market member over others. In no event did it ever compromise the market’s integrity when, in 2009, it deployed pilot programmes linked to the new high frequency trading practices then beginning to appear on European markets," it said.

Virtu will also pursue its right to appeal, the Financial Times said.

"We firmly believe that the relevant activity, conducted by Madison Tyler’s European subsidiary in 2009, complied fully with applicable law and regulation," Doug Cifu, chief executive of Virtu, said, according to the Financial Times. 

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