The FIA European Principal Traders Association, together with its affiliates FIA and FIA Europe, jointly responded on August 1 to the European Securities and Markets Authority's consultation process for the implementation of the recast Markets in Financial Instruments Directive and the new Markets in Financial Instruments Regulation. This consultation process brings European policy makers one step closer to finalizing a major overhaul of financial markets legislation, and the responses set out the FIA Associations' views on the critical issues impacting the future shape of European market structure.
In response to ESMA's request for comment on the Consultation Paper's microstructural issues section, the FIA Associations provide input on two proposals regarding the definition of high frequency trading. The concepts of algorithmic trading and HFT are defined in broad terms under MiFID II, which mandates ESMA to consider and clarify the definition of HFT in order to ensure uniform application of the authorization requirement to investment firms engaging in HFT. The FIA Associations have consistently held the view that adopting a formal definition of HFT is neither practical nor desirable for formulating regulation because a clear distinction between HFT and algorithmic trading cannot be made. Over time, the FIA Associations expect participation and automation in the market to grow along with the sophistication of the participants, who will increasingly fall under the HFT regulation until all such participants have HFT capability. Nevertheless, given that there is clearly a regulatory impetus to formulate such a distinction to ensure a uniform application of the authorization requirement for persons that engage in high frequency algorithmic trading, we propose a carefully considered, accurate definition strictly for this purpose.
In response to the Discussion Paper's microstructural issues section, the FIA Associations leverage their expertise in secondary markets to provide input on several key policy topics considered by ESMA, such as certain organisational requirements applicable to both investment firms engaging in algorithmic trading and trading venues, market making obligations, order-to-transaction ratios, co-location, fee structures applicable to trading venues, and tick sizes.
Consultation Paper Response
(response begins on page 34)
Discussion Paper Response
(response begins on page 31)