MEPs look to slam the brakes on high-frequency traders

MEPs look to slam the brakes on high-frequency traders

High-frequency traders operating in European markets will be forced to keep orders open for at least half-a-second under tough new trading rules voted through by the European Parliament's Economic and Monetary Affairs Committee late on Wednesday.

The Committee voted unanimously in favour of a set of sweeping reforms to the Market in Financial Instruments Directive, which lays down uniform trading rules for firms operating in EU securities markets. The updated guidance touches all all corners of the financial markets, from the creation of new types of execution venue, through curbs on algorithmic trading strategies, dark pools and market data pricing, to the introduction of a consolidated tape, and clearing competition.

During Wednesday's debate, MEPs tightened up the European Commission's proposal on HFT, moving to slam the brakes on a market practice that has been condemned by politicians for encouraging speculators and disrupting markets. MEPs voted provisions to ensure that all orders should be valid for at least 500 milliseconds, and must not be cancelled or modified during that time.

The move is likely to cause an outcry among HFT supporters, who claim that their involvement in the markets helps drive liquidity and lower spreads across the board.

All firms and trading venues would also have to ensure that trading systems are resilient and prepared to deal with sudden increases in order flows or market stresses. These could include circuit breakers to suspend trading.

"All market players and trading venue operators would be required to lay down clear rules and procedures for fair and orderly trading, objective criteria for executing orders efficiently and transparent criteria for determining which financial instruments may be traded via their systems," says the Committee. "They should also be properly prepared to cope with disruptions of these systems."

MEPs decided that the OTF, a new alternative to regulated markets and MTFs, should be reserved for non-equities (derivatives or bonds), so as to bring them under MiFID rules. This will mean that broker crossing networks will be forced to re-classify as multilateral trading facilities (MTFs).

Introducing the amendments, lead MEP Markus Ferber says: "The main goals of the reform of the financial markets regulation are reducing systemic risk, guaranteeing financial market stability and an adequate investor protection. We now look to the Council to join us in negotiations with the Commission, so that we can bring these proposals to a successful conclusion."

He added that he hoped that Parliament could put the amendments proposed by the committee to a plenary vote in October.

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