Trading | HFT
“The technology is an enabler not only for market participants such as HFT but also for the regulators.” Sébastien Jaouen, Etrali
Licensed firms must hold at least €730,000
in capital and have to make sure their trading systems are resilient, are operating within the trading and risk parameters, have the capacity needed to cope with their activity, do not send erroneous orders or disrupt orderly market function, market abuse regulations or venue rules and have business continuity plans in place to prevent operational failure. Trading venues have to tag orders generated by algorithms, set limits on order to trade ratios and message volumes, with levels appropriate to the assets being traded and their characteristics. Any trading firm that place orders to fix artificial
price levels; disrupt or delay the functioning of the trading system; to make it difficult for third parties to identify genuine purchase or sell orders in the trading system; or to create a false or misleading impression about the supply of or the demand for a financial instrument, will be considered market manipulation whether or not the algorithm that places the orders is engaging in HFT or not. At least one firm is reported to be shutting
down as a result of these rules. Cologne Independent Traders, which operates in Germany and Switzerland, describes itself as a specialist in Delta-1 trading with a focus on stocks, commodities
Best Execution | Summer 2013
and futures and exchange trading funds (ETFs), is expected to shut before the end of the year.
Crest of an international wave BaFin is one of the first regulators globally to introduce these rules but many others are close on its heels. In Asia, HFT is only viable in a few markets but policymakers are aggressively imposing frameworks to help them avoid the sort of events seen in the US. Meanwhile, ASIC is in the process of introducing
rules to give market operators better control over extreme price movements, by using automated trading pauses which will extend to the ASX SPI 200 Futures market and enhanced market participant filters and controls for automated trading, which will include a ‘kill switch’ to immediately shut down problematic trading algorithms. It also charges trading venues a levy based
upon the amount of message traffic that it has to manage to monitor them. Taxes on equity trading in Korea make HFT non-viable, but its derivatives markets rely hugely on HFT. Joon-Seok Kim, research fellow in the Capital Markets Department at the Korea Capital Market Institute, has identified that firms posting 1000+ orders a day on a single instrument in the
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