Ahead of tomorrow’s deadline for MEPs to submit MiFID II amendments, industry bodies have weighed in on the high-frequency trading (HFT) debate, calling for venues to be given more control over how they handle message traffic.
The Futures and Options Association (FOA) held a meeting on Tuesday attended by MEPs Olle Schmidt and Kay Swinburne with the aim of ensuring issues related to HFT are properly understood. Meanwhile, the Futures Industry Association’s European Principal Traders Association (EPTA) released a position paper yesterday to address “misconceptions” surrounding HFT.
“It’s time to bring more balance to the HFT debate, which until now has been driven by emotive language, anecdotes and fabrications rather than hard fact,” said Remco Lenterman, EPTA chairman.
Both bodies disagreed with a number of amendments made by Markus Ferber, the lead MEP for the European Parliament’s reading of MiFID.
In his initial amendments, Ferber proposed that trading venues put controls in place to ensure all orders have a minimum lifespan of 500 milliseconds, that national regulators require trading venues to impose higher fees on market participants who cancel a high proportion or orders, and that direct electronic access (DEA) to trading venues – such as sponsored access – be banned.
Although the FOA and EPTA were both supportive of charging for a high number of cancels, they insisted trading venues should decide fees, rather than national regulators.
“A blunt, one-size-fits-all approach to charging for order cancels would not reflect the fact that different products have different liquidity levels and therefore need to be calibrated differently,” Kathleen Traynor, executive director of regulation at the FOA, told theTRADEnews.com.
Traynor said much of the FOA meeting with MEPs was focused on explaining the evolution of direct market access and the different ways of accessing the market to help inform policy.
The FOA said naked sponsored access – the ability to trade through a firm with market access without pre-trade risk checks – should be prohibited, but banning DEA outright would require retail investors and smaller brokers to become direct members of trading venues or revert to telephone trading, leading to higher costs.
The bodies also highlighted the risks of imposing minimum resting times for orders, with the EPTA saying such a move would undo improvements to market quality which have been achieved over the last seven years, such as wider spreads and decreased liquidity.
“The cost of this additional risk would be reflected in each order or quote through wider spreads and would, in turn, raise trading costs for all investors, both retail and professional,” read the EPTA paper.
After MEPs have submitted their amendments to MiFID II, the European Parliament will then finalise its version of the directive before it is passed to the Council of the European Union. Implementation of MiFID II is anticipated in 2014.