High-Frequency Trading Standard Moves EU Market Revamp Forward

  • European Commission adopts second delegated act under MiFID II
  • EU Parliament's Ferber says rule is `important step' on HFT

The European Union took a step forward in its revamp of financial-market rules with the publication of technical standards on high frequency trading and other activities.

The European Commission, the EU’s executive arm, adopted a second package of rules under the legislative overhaul known as MiFID II. Among its provisions is a definition of the “high message intraday rates” that characterize the “high-frequency algorithmic trading technique” set out in the MiFID II directive.

The definition of high message intraday rates -- orders, quotes and cancellations -- published on Monday is set at “at least 2 messages per second with respect to any single financial instrument traded on a trading venue,” and “at least 4 messages per second with respect to all financial instruments traded on a trading venue.”

“The 2010 flash crash in New York has shown what can happen if high frequency trading gets out of control,” said Markus Ferber, the European Parliament’s lead lawmaker on MiFID II. “Such an incident must never happen in Europe. This delegated act is an important step to rein in high frequency trading, but the devil is in the details.”

‘Too Long’

The commission published the so-called delegated act as lawmakers negotiate the terms of delaying the start date of MiFID II by one year to 2018. The commission proposed the postponement in November to give banks and other financial firms time to build data-reporting systems and other technology to meet the new requirements. But the process has become bogged down as lawmakers debate the best approach.

Ferber criticized the commission for the slow pace of work on Monday’s rules.

“The commission took far too long to come up with these rules,” he said. “If the calibration goes wrong, the regime will be undermined. Therefore we need to get it right the first time,” he said. “The European Parliament will now check carefully and swiftly if the thresholds proposed by the commission strike this delicate balance.”

Earlier this month the commission completed rules that specified how financial firms had to charge for investment research. Banks and brokers won a concession after the rules indicated the institutions will be able to continue to offer market commentary without charging a separate fee.