19 January 2017
visit http://www.wolterskluwerfs.com

Study questions MiFID II HFT plans

03 September 2012  |  6796 views  |  0 mifid

A UK-government commissioned working paper on the economic impact of MiFID II has hit out at several key computer trading rule proposals, warning that they could damage economic growth.

The updated guidance to the five-year-old MiFID (Markets in Financial Instruments Directive) offers several proposals designed to curb high-frequency trading.

The Foresight working paper, which brings together 35 academics from nine countries to examine the proposals, backs plans for the use of circuit breakers and a coherent tick size policy across similar markets.

However, it questions the evidence for another key plank of the plans; the imposition of market maker obligations. For some securities, these obligations "run into complications" arising from the nature of high frequency market making, say the academics. Many HFT strategies post bids and offers across correlated contracts. A requirement to post a continuous bid-offer spread is not consistent with this and, if binding, could force traders out of the business of liquidity provision.

Similarly, minimum resting times, while "conceptually attractive", can impinge upon hedging strategies which operate by placing orders across markets and expose liquidity providers to increased 'pick-off risk' if they are unable to cancel stale orders, says the paper.

The evidence for requiring notification of algorithms or minimum order-to-execution ratios is also questioned. Says, the paper: "The proposed notification policy is too vague, and its implementation, even if feasible, would require excessive costs for both firms and regulators."

Meanwhile, an order-to-execution ratio is a "blunt policy instrument" to reduce excessive message traffic and cancellation rates.

Although the Foresight project is sponsored by the UK government, it does not represent its backer's position. Nevertheless, the government's chief scientific adviser, Sir John Beddington, says: "I believe this evidence and analysis will be valuable to policy makers and regulators wanting to maximise the opportunities from computer-based trading while managing the risks. This kind of analysis is vital if a resilient regulatory framework is to be put in place."

Read the full paper:» Download the document now 359.4 kb (PDF File)

Comments: (0)

Comment on this story (membership required)

Finextra news in your inbox

For Finextra's free daily newsletter, breaking news flashes and weekly jobs board: sign up now

Related stories

Lords call for halt to "rushed" MiFID II reforms

Lords call for halt to "rushed" MiFID II reforms

10 July 2012  |  6596 views  |  1 comments
European parliamentarian demands tougher crackdown on HFT

European parliamentarian demands tougher crackdown on HFT

26 March 2012  |  7651 views  |  0 comments
EU financial markets get ready for MiFID II

EU financial markets get ready for MiFID II

19 October 2011  |  10388 views  |  1 comments
European exchanges hit out at broker networks

European exchanges hit out at broker networks

08 April 2011  |  7475 views  |  0 comments
Industry clamour over MiFID II proposals grows louder

Industry clamour over MiFID II proposals grows louder

03 February 2011  |  11226 views  |  0 comments
EC publishes MiFID II consultation

EC publishes MiFID II consultation

08 December 2010  |  12222 views  |  0 comments
MiFID II to tackle high-frequency trading

MiFID II to tackle high-frequency trading

03 December 2010  |  12127 views  |  0 comments
CESR signals MiFID overhaul

CESR signals MiFID overhaul

29 July 2010  |  12614 views  |  0 comments

Related blogs

Create a blog about this story (membership required)
Visit capgemini.comvisit wavestone.co.uk

Top topics

Most viewed Most shared
Banks face big profit loss to digitisation - McKinseyBanks face big profit loss to digitisation...
15024 views comments | 85 tweets | 106 linkedin
Blockchain impact timeline speeds up, massive cost savings forecastBlockchain impact timeline speeds up, mass...
13572 views comments | 39 tweets | 36 linkedin
Seven banks plan blockchain platform for SMEsSeven banks plan blockchain platform for S...
12117 views comments | 47 tweets | 41 linkedin
Accenture beats Brexit blues with largest-ever London startup programmeAccenture beats Brexit blues with largest-...
10391 views comments | 30 tweets | 20 linkedin
hands typing furiouslyBlockchain: Time To Get Your Feet Wet
7211 views 0 | 23 tweets | 9 linkedin

Featured job

to Six-Figure Base, Bonus, Benefits
London, UK

Find your next job