So MiFID II is aiming to make up for these shortcomings in 2007s regulation , and will provide a definition of HFT and new controls to ensure that regulators have much more information about the way these firms work than ever before .
HFT is also one area which already has a definition , or a partial one at least , courtesy of the second delegated act published by the European Commission in May this year . The delegated act says in
Article 19 : “ A high message intraday rate in accordance with Article 4 ( 1 )( 40 ) of Directive 2014 / 65 / EU shall consist of the submission on average of any of the following : ( a ) at least 2 messages per second with respect to any single financial instrument traded on a trading venue ;
( b ) at least 4 messages per second with respect to all financial instruments traded on a trading venue While there are some other paragraphs detailing that such trades must happen in liquid instruments and the need for trading venues to provide firms with data to enable them to judge whether or not they qualify as HFTs , the act contains one other key passage :
“ For the purposes of paragraph 1 , messages introduced for the purpose of dealing on own account shall be included in the calculation . Messages introduced through other trading techniques than
those relying on dealing on own account shall be included in the calculation where the firm ’ s execution technique is structured in such a way as to avoid that the execution takes place on own account .”
TOO BROAD ? So these two excerpts together seem to provide a robust , if very broad , definition of what European regulators consider to be a high-frequency trader .
The fact that it is so broad certainly made some headlines when the act was first published and has led to widespread concern that a vast array of market participants would be subject to these new rules .
“ When the delegated act was first published we had calls from a number of clients who were concerned this definition would cover them ,” says Christian Voigt , senior regulatory adviser at technology specialist Fidessa .
“ However , it is important to note that this is just one of three main criteria contained in the
THERE ARE DEFINITELY FEARS IN THE MARKET THAT THIS WILL IMPACT ON LIQUIDITY …
CHRISTIAN VOIGT , SENIOR REGULATORY ADVISER , FIDESSA level 1 text of MiFID II . The high-level text states that high message frequency , covered here , is one criterion , but there will also be considerations of the kind of infrastructure firms use and the degree of human intervention in their trading processes as well .” Giles Kenwright , head of regulatory advisory at consulting firm Delta Capital , feels the definition provided so far is appropriate for what the regulators want to achieve .
“ I don ’ t think regulators could be much more relaxed in the way they define HFT ,” he explains , “ we could even see it made broader in future . The key thing for the regulator is that MiFID I had no mention of HFT or algo trading ; but the flash crash in 2010 and other events since have opened people ’ s eyes to the kind of damage
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