May 10, 2012
MEPs set to temper Ferber’s HFT curbs
Proposals by
Markus Ferber MEP, the European Parliament’s figurehead for its review of
MiFID, to restrict high-frequency trading (HFT) are likely to be eased by other
MEPs.
Members of the
European Parliament’s Economic and Monetary Affairs Committee (ECON) are
required to submit any amendments they have for MiFID II today, following draft
amendments made by Ferber in March.
ECON members are
expected to reject Ferber’s suggestion to ban direct electronic access (DEA),
as well as his plan to impose a minimum resting period of 500 milliseconds for
all orders.
In a document
seen by theTRADEnews.com, Olle Schmidt MEP, a member of the Group of the Alliance of
Liberals and Democrats for Europe, has proposed eliminating the minimum resting
period and limiting the ban on DEA to naked sponsored access, i.e. the practice
of accessing markets without pre-trade risks controls, only.
“Instead of banning all forms
of direct market access, we think pre-trade risk checks need to be mandated,
which is likely to be the common position of most MEPs,” Rickard Ydrenäs, policy advisor to
Schmidt, told theTRADEnews.com.
Controls to ensure investors
do not access markets without pre-trade risk controls are already included in guidelines from the European Markets Securities Authority, which came into
force at the beginning of this month.
Ferber kicked off the ECON review
of MiFID with a public consultation on initial proposals made by the European
Commission last October. After responses to the consultation were collated,
ECON held a meeting in February after which Ferber proposed his own amendments
to the Commission text based on the overall feedback.
Defining HFT
Ydrenäs also agreed with the
need to control HFT, but added that the definition of the practice proposed by
Ferber needs to be “fine-tuned”.
“Seeing
as there is not much hope for a Europe-wide financial transaction tax, there is
more focus on ways to curb speculation and curbs on HFT are one way of doing
this,” he said.
While the European Parliament
is required to reach an agreement with the Council of the European Union before
MiFID II is finalised, it can only advise the Council on the FTT proposal.
Given the growing reluctance of many European countries, including the UK, to
back the tax, Ydrenäs considered the proposal to be “dead in the water”.
In his
amendments, Ferber stated that HFT firms would be defined as market participants that deal on their own account and
meet at least four of five characteristics. Firms that fall under the
definition would be required to provide continuous liquidity to the market.
Schmidt has
proposed an order-to-trade ratio of 250:1, rather than 4:1, for defining HFT,
to restrict the impact of the proposal on more traditional investors.
“While we agree
with the approach to place continuous trading obligations on HFT firms, we must
ensure that algo trading conducted by pension funds is not captured,” said Ydrenäs.
Ydrenäs added that the potential for HFT firms to
circumvent the definition so that they are not bound by continuous quoting
obligations would need to be discussed by ECON members.
After the amends have
been tabled, Ferber will produce another version of the directive that will be
voted on by ECON in July. The Council of the European Union will then propose
its version of MiFID II, before a final text is negotiated through the
trialogue process, which involves the Parliament, Council and European
Commission.
Anish Puaar
+44 (0)20 7397 3817
anish.puaar@thetrade.ltd.uk