Regulatory front-running

Front-running is regarded as a form of market abuse and is banned accordingly. Although it is widely accepted that MiFID II will implement new regulation on algorithmic and high-frequency trading, that doesn’t seem to have stopped the law makers indulging in a little ‘front-running’ of their own. First, Germany passed its HFT Act ahead of schedule and now France seems to be jumping the gun too with this week’s updates to the French banking law.

A lot of details are still uncertain but it appears that firms using “traitement automatisé” (automated processing) are now required by that law to register with the French regulator. Those firms must have an audit trail for each order sent to the market and store that audit trail, together with details of all the algos involved, for a certain period of time. At first glance it looks to be less onerous than the German HFT Act, but that’s not really helpful given that neither initiative directly lines up with the MiFID II proposals.

While ESMA and Brussels keep praising the level playing field and the single market, national legislators seem to be pulling in the opposite direction edging us closer to a regulatory fragmented Europe!