The festive season has offered a delayed gift to HFT firms that have spent most of 2012 in the crosshairs of European regulators and politicians.
German HFT legislation, which attempts to move ahead of similar Europe-wide HFT curbs in MiFID II, has been soften after indications the much-feared licensing requirement will be expunged.
German lawmakers - including the Bundesbank - have reportedly raised concerns at possible impact of the licensing requirement on liquidity. Europe's leading HFT lobby group, the FIA European Principal Traders Association has voiced some concern at this particular rule, but has offered provisional support to the regulation's other aspects.
"We generally endorse the proposal and believe a reasonable regulation of high-frequency trading to be appropriate, such as requirements on minimum tick sizes, enhanced transparency and order-to- trade ratios based on the respective class of instruments," said Mark Spanbroek, secretary general of the FIA EPTA.
The law is expected to be finalised this quarter and will give better oversight of HFT activity by national regulators in Germany. Initially, it was thought that all HFT firms operating on German venues would have to register with national authorities. This would have included maintaining a base within Germany and obligations similar to those placed upon financial institutions, such as minimum capital thresholds.
At a hearing chaired by the Finance Committee of Germany's Bundestag (lower house) last Wednesday, a number of industry bodies seem to have convinced politicians to drop the most biting of the proposed rules.
Germany's incumbent exchange, Deutsche Börse, also joined the chorus, pointing out that HFT activity soaks up some 40% of flow on its Xetra equities venue.
But could the German rules foreshadow the end of HFT firms as Europe's trading scapegoats, charged with reducing the quality of liquidity and using technology to create an unfair advantage compared with institutional traders? Probably not. A sizeable chuck of regulatory change in Europe still has HFT firmly in its sights.
MiFID II, which will not be finalised until later this year, and will come into effect in 2015 at the earliest, has mooted a 500-millisecond minimum resting time for orders, venue-specific order-to-trade ratios and a ban on the maker-taker pricing model.