Harsh HFT curbs could sneak into MiFID II

A leading MEP has warned MiFID II could contain severe high frequency trading restrictions which would disadvantage all market participants.

A leading MEP has warned MiFID II could contain severe high frequency trading (HFT) restrictions which would disadvantage all market participants.

At issue is the possible introduction of minimum resting times, which could force HFT firms out of the market, widening spreads and making trading more costly.

Speaking to theTRADEnews.com, Kay Swinburne MEP, said discussions of the European Parliament’s Economic and Monetary Affairs Committee (ECON) last week failed to deliver common ground on the possible inclusion into MiFID II of minimum resting times.

“The minimum resting period is unnecessary and will increase costs to all market participants while not addressing the real issues raised by HFT,” Swinburne said. “However, I may be in the minority in the Parliament on this and so expect it may have enough political support to be voted into the Parliament’s text.”

Two more ECON meetings are scheduled for Monday and Tuesday this week, with the purpose of reaching agreement on MiFID II ahead of the 26 September vote.

Also on the agenda are order-to-trade ratios (OTRs) and circuit breakers as possible devices for curbing HFT. The introduction of OTRs could be one way to limit HFT trading, which relies on sending multiple orders to different venues at high speed to exploit price arbitrage opportunities.

“The Parliament seems to be reaching agreement around the need to look at fee structures related to OTRs as opposed to setting hard numbers as this can then be tailored by venues themselves and better adapted to suit different instruments and styles of trading,” Swinburne said.

The MEP insisted the addition of circuit breakers – which were not contained in MiFID’s original 2007 text but have been mooted as a possible inclusion to the current iteration – would be one of the most important mechanisms in adapting markets to HFT.

“In a flash crash situation we need more certainty over how the different venues in Europe would interact to ensure the whole market is not in chaos. While there was some discussion of precisely how automated this coordination needs to be, all MEPs agree that the venues systems can not be seen in isolation,” Swinburn said.

Monday’s meeting will be dominated by market structure regulation and the creation of a consolidated tape across European venues, and Swinburne believes the additional round of negotiations this week would not delay the new directive’s inception in the long run.

“We are all working hard to reach a good compromise between the six political groups, and the rapporteur Markus Ferber still intends to be ready for the 26 September vote,” Swinburne said.

The main reason for the additional meetings was to find agreement on the 2,000-plus amends put forward by MEPs earlier this year, which initially caused ECON to delay its vote from July to September.

After MEPs vote to finalise ECON’s version of MiFID II, the Council of the European Union – a collection of member states’ finance ministers – will agree a separate version of the text before both versions are reconciled with input from the European Commission.

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