Borsa Italiana, the Italian subsidiary of the London Stock Exchange Group (LSE), has set out details of a new pricing regime designed to penalise high-frequency traders and other firms with a high order to cancel ratio.
From 2 April, the new pricing regime will impose limits and fees on orders entered in excess of an order to trade ratio (OTR) of 100:1 for instruments listed on its equities market MTA and 40:1 across its MIV investment vehicles market and AIM Italiana – MAC platform for small and medium enterprises.
For each order sent in excess of the ratio, Borsa Italiana will charge the trading firm at a rate depending on how badly it has exceeded the ratio. For one to five times the OTR, the fee is €0.01; for five to ten times the OTC the fee is €0.02; and above ten times the OTR, €0.025 will be charged.
In addition, there will be a daily cap at €1,000 for instruments traded on each of Borsa Italiana’s respective platforms.
The planned introduction of the new fee structure follows a request by Italian regulator Consob last year, in which the regulator called on Borsa Italiana to take action to curb the “excessive” numbers of orders being entered by some HFT participants. HFT firms typically send out large volumes of orders, cancelling the majority.
Proponents of HFT argue that it helps increase liquidity by boosting volumes on Europe’s trading venues and by contributing to narrower spreads by arbitraging away price inefficiencies. Opponents counter that HFT may be harmful to the interests of long-term investors, by promoting the fragmentation of liquidity and by feeding on slower-moving institutional activity.
Regulatory measures aimed at controlling HFT are currently a possibility in several European countries. France is currently pushing forward with a financial transaction tax proposal that would charge 0.1% for failed, cancelled or modified orders, reduced to 0.01% if they stay below a certain daily threshold.
A European Commission proposal for a Eurozone financial transaction tax is also under consideration, with member states to implement the tax by the start of 2014, should it be successful. After the European Parliament has offered its opinion, a plenary vote will be held in May.
Borsa Italiana is due to move its equities matching engine back to Milan in Q2 2012 – a move timed to coincide with the bourse’s adoption of the LSE’s new Millennium Exchange trading platform, which was introduced for the UK market in February 2011.
Guiseppe Vegas, head of Italy’s Consob, recently hit out at the LSE's 2008 takeover of Borsa Italiana, on the grounds it had not fulfilled expectations either in Italy or London. Cross-border capital flows and investment in Italian companies had yet to increase as a result of the deal, he said.