May 09, 2012
Industry bodies suggest HFT rule amends ahead of MEP deadline
Ahead of tomorrow’s
deadline for MEPs to submit MiFID II amendments, industry bodies have weighed
in on the high-frequency trading (HFT) debate, calling for venues to be given
more control over how they handle message traffic.
The Futures and
Options Association (FOA) held a meeting on Tuesday attended by MEPs Olle
Schmidt and Kay Swinburne with the aim of ensuring issues related to HFT are
properly understood. Meanwhile, the Futures Industry Association’s European
Principal Traders Association (EPTA) released a position paper yesterday to
address “misconceptions” surrounding HFT.
“It’s time to bring more
balance to the HFT debate, which until now has been driven by emotive language,
anecdotes and fabrications rather than hard fact,” said Remco Lenterman, EPTA
chairman.
Both bodies
disagreed with a number of amendments made by Markus Ferber, the lead MEP for
the European Parliament’s reading of MiFID.
In his initial
amendments, Ferber proposed that trading venues put controls in place to ensure
all orders have a minimum lifespan of 500 milliseconds, that national
regulators require trading venues to impose higher fees on market participants
who cancel a high proportion or orders, and that direct electronic access (DEA) to trading venues – such as sponsored access – be banned.
Although the FOA
and EPTA were both supportive of charging for a high number of cancels, they
insisted trading venues should decide fees, rather than national
regulators.
“A blunt,
one-size-fits-all approach to charging for order cancels would not reflect the
fact that different products have different liquidity levels and therefore need
to be calibrated differently,” Kathleen Traynor, executive director of
regulation at the FOA, told theTRADEnews.com.
Traynor said much of the FOA meeting with MEPs was focused on explaining the evolution of direct market access and
the different ways of accessing the market to help inform policy.
The FOA said
naked sponsored access – the ability to trade through a firm with market
access without pre-trade risk checks – should be prohibited, but banning
DEA outright would require retail investors and smaller brokers to become
direct members of trading venues or revert to telephone trading, leading to
higher costs.
The bodies also
highlighted the risks of imposing minimum resting times for orders, with the
EPTA saying such a move would undo improvements to market quality which have been achieved over the last seven years, such as wider spreads and
decreased liquidity.
“The cost of this
additional risk would be reflected in each order or quote through wider spreads
and would, in turn, raise trading costs for all investors, both retail and
professional,” read the EPTA paper.
After MEPs
have submitted their amendments to MiFID II, the European Parliament will then
finalise its version of the directive before it is passed to the Council of the European Union. Implementation of MiFID II is
anticipated in 2014.