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EU defines high-frequency trading

The European Commission has given details of how it will define high-frequency trading (HFT) as part of its new approach financial markets regulation, the revised Markets in Financial Instruments Directive (MiFID II).27 Apr 2016

A high-frequency trader will be defined as one sending at least two messages per second for a single instrument on any trading venue, or at least four messages per second in respect to all instruments being traded on a venue, the Commission said in proposed regulations published this week.

Markus Ferber, the rapporteur for the MiFID II legislation in the European Parliament, welcomed the decision, saying that the EU now had a clear and coherent set of rules.

"The 2010 flash crash in New York has shown what can happen if high frequency trading gets out of control. Such an incident must never happen in Europe. This delegated act is an important step to reign in HFT, but … if the calibration goes wrong, the regime will be undermined. Therefore, we need to get it right the first time," Ferber said, in documents emailed to Out-Law.com.

HFT would now be subject to more control and transparency rules, and "the European Parliament will look very closely to check that the rules cannot be circumvented," Ferber said. 

The European Parliament and Council have three months to study the proposals. 

In February, the European Commission proposed a one year delay on MiFID II to allow technical work to be finished in time. The new deadline will be 3 January 2018. This takes account of the technical implementation challenges faced by regulators and financial firms, the Commission said

A "complex technical infrastructure" needs to be set up for the MiFID II package to work effectively, the Commission said. The European Securities and Markets Authority (ESMA) has to collect data from about 300 trading venues on about 15 million financial instruments, working closely with national competent authorities and the trading venues.

ESMA has predicted that neither the competent authorities nor the venues will have the systems that they need in place by 3 January 2017, the Commission said.

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