Law no. 2013-672 dated 26 July 2013 on the separation and regulation of banking activities (the “Banking Law”) introduced, inter alia, Article L.451-4 of the French Code monétaire et financier (the “Financial Code”) which sets out an obligation to disclose to the Autorité des marchés financiers (the “AMF”) the use of automated processing facilities on French based companies within the month following their operation (“APF Notification”).
Through this reporting requirement, the AMF wants to ensure that orders affecting French based companies are properly tracked so as to preserve their integrity and reduce the risk of market abuse.
The APF Notification which entered into force as from 1st January 2015 (first APF Notification will be required at the latest by end of January 2015) is detailed in Article 315-67 of the Réglement général de l’Autorité des marchés financiers (the “AMF General Regulation”) providing information on trading algorithms covered and on the legal entities/natural persons subject to the APF Notification.
On 12 December 2014, the AMF also published guidance on the APF Notification process as described below:
1. Trading algorithms covered
Pursuant to Article 315-67 of the AMF General Regulation, all types of trading algorithms used to issue orders on regulated markets (“RM”) or multilateral trading facilities (“MTF”) in the conditions set out in Section 3 below, including those delivered as “standard features” by trading station suppliers when they allow the user to set order execution modes according to certain market parameters (such as volume and time weighted average prices).
That being said, Smart Order Routers which are used to route customers’ orders to the trading venues offering the best execution conditions, fall out of the scope of the APF Notification.
2. Financial instruments concerned
These rules apply to securities of companies with their registered head office in France:
- Equity securities, including shares in French open-ended investment companies, and
- Debt securities, including certificates and warrants issued by French investment services providers (“ISPs”) (whatever the underlying asset).
However, financial contracts (e.g swaps, futures) including those for which the underlying asset is an equity security of a company with its head office in France, sovereign loans, securities issued by foreign subsidiaries of French companies, and units of collective investment schemes are not concerned by the APF Notification.
3. Legal entities/natural persons covered by the notification requirement
The AMF stressed that the provisions of Article 315-67 of the AMF General Regulation apply to any person using one or more APFs issuing orders for securities of a company with its head office in France.
The below table summarizes the scope of notification by APF user type:
User type | Scope of notification (1) |
French ISP (and its branches) | EEA1 RM and MTF (2) |
EEA ISP (and its branches, including those in France) | French RM and MTF |
Resident in France other than an ISP (3) | EEA RM and MTF (2) |
Non-resident (entity regulated in its country outside the EEA,
non-regulated entity – EEA, non-EEA entity (3) and
non-resident natural persons (3)) | French RM and MTF |
(1) Always concerning securities of companies with their head office in France
(2) List of EEA markets available on the ESMA MIFID database
(3) Excluding customers of online brokers or online banks, in which case notification is by the broker/bank.
Accordingly:
- When a portfolio management company or bank transmits orders to an ISP which uses APFs to execute the orders received, only the ISP using the APF will have to make the notification.
- ISP with branches must make a single notification for all the APFs used by themselves and their branches.
- When an ISP provides a customer with an APF through direct access to a market, the customer makes a notification; the ISP only makes a notification if it also uses this APF itself (in each case, according to the scope of notification above).
- When an EEA ISP provides a French ISP with an APF through direct market access which targets EEA markets outside France, the foreign ISP does not make the notification (even if it uses the APF itself): the notification will be made by the French ISP.
4. Notification form
The AMF has also released a notification form in English on its website (see below). Entities subject to the APF Notification must complete this form and send it to the AMF at the following address: intermediaires@amf-france.org.
This form must also be completed for any update of previously notified information.
Please refer to: Notification template of automated processing facilities in compliance with Article 315-67 of the AMF General Regulation.
5. Data storage
The AMF also reminds that any person or entity using an APF must set up the necessary procedures and internal organization to store for a period of five years the APF used for each transaction, each order and each order modification or cancellation. This obligation thus applies to the APF user. In practice, the user of an APF provided by an ISP can rely on the ISP to store the data, having first ensured that the ISP in question has set up a suitable data storage system.
1 European Economic Area
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