Brits and Swiss resist Euro HFT sanctions trend

Britain and Switzerland remain outliers as the rest of Europe’s major financial markets begin to impose taxes or fees against high-frequency trading practices.

Britain and Switzerland remain outliers as the rest of Europe’s major financial markets begin to impose taxes or fees against high-frequency trading (HFT) practices.

The electronic trading practice is sustaining continuing attacks across Europe, with several member states and local bourses implementing – or looking to levy – new restrictions or financial impositions on HFT.

But UK watchdog, the Financial Services Authority (FSA), is understood to be resisting the regional trend, preferring to contribute to various studies and European initiatives before enacting its own HFT controls.

The British government’s Foresight project is currently investigating HFT with aims to advise policymakers on the potential impact of computerised trading on financial markets. The FSA is believed to be reserving judgement on HFT until Foresight is published before the end of the year.

Britain’s Foresight study will also feed into the policies of American agency the Securities Exchange Commission and the European Securities and Markets Authority (ESMA), which will guide the operation of electronic systems by trading venues and direct market participants. ESMA’s guidelines will come into effect by 1 May.

The Swiss Financial Market Supervisory Authority (FINMA) has also stated it is not looking to specifically curb HFT.

“It is the task of FINMA to ensure the transparency and integrity of the markets and the equality of the market participants,” a spokesperson for the regulator said. “If these conditions are met, the evaluation of this technology is not within the responsibility of FINMA. FINMA…has no intention to start regulatory steps by itself.”

The latest to enter the fray against HFT is German exchange Deutsche Börse, which is looking to discourage traders from sending out too many orders that do not result in actual trades. Labelling such electronic trading mechanisms as “stupid algos”, Deutsche Börse is looking to deter what it calls capacity abuse by market participants.

And from 2 April, a new pricing regime at Italian exchange Borsa Italiana imposes limits and fees on orders entered in excess of an order to trade ratio (OTR) of 100:1 for instruments listed on MTA, its equities market.

For each order sent in excess of the ratio, Borsa Italiana, a subsidiary of the London Stock Exchange Group, will charge trading firms on a sliding scale dependant on how much the ratio is exceeded. For one to five times the OTR, the fee will be €0.01. For five to ten times, the OTR fee will be €0.02. Above ten times the OTR, €0.025 will be charged.

France also wants to capture high-frequency traders via its plan for a financial transaction tax, which could come into force by 1 August. The charge would levy a charge of 0.1% on HFT activity, which will be reduced to 0.01% for failed, cancelled or modified orders as long as they stay below a certain daily threshold. 

Swedish regulator Finansinspektionen is also considering guidelines of its own after a recent investigation found the country's equity markets were harmed from HFT and algorithmic trading. While the harm was thought to be minimal, the watchdog said greater potential for market abuse existed from an increasingly fast-moving, high-volume marketplace.

Pan-European controls under MiFID II will impose safeguards on brokers offering direct market access, including HFT firms. The European directive will require risk controls at trading venues to ensure platform resilience. MiFID II is currently under review by the European Parliament, with implementation expected in 2014.