Europe’s Prop Traders Fear MiFID II Delays Could Deal Blow For HFT

Terry Flanagan

Europe’s high-frequency traders are urging a swift resolution to the MiFID II discussions, which are currently being held up in the corridors of power in Brussels, as they warn that any further delays could work against the HFT community.

The FIA European Principal Traders Association (FIA Epta), a Brussels-based proprietary trading group, wants to see Ireland, which currently holds the revolving six-month presidency of the Council of Ministers, take charge of negotiations that appear to have stalled somewhat.

Ireland, whose presidency ends on June 30, is seen as more market friendly and possesses more political clout than the next two incumbents due to hold the post—lowly Lithuania and debt-ridden Greece.

For a directive to become law such as MiFID II, which promises sweeping reforms to Europe’s capital markets, both the European parliament and the Council of Ministers have to agree on separate texts. They then bring their final versions to a series of meetings known as trialogues with the European Commission, the other main body in Brussels, where the final law is then thrashed out.

Mark Spanbroek, secretary-general, FIA Epta

Mark Spanbroek, secretary-general, FIA Epta

“We would hope that the Irish finish the trialogue discussion,” said Mark Spanbroek, secretary-general of FIA Epta, which represents firms that trade on their own capital on European exchange-traded markets, such as Knight Capital, Optiver, Getco, Citadel Securities and Quantlab Financial.

“We challenge them to come up with an agenda. It is a concern that there are more delays as the trialogue may start too late. It is Lithuania next, then Greece.”

The European parliament almost unanimously agreed their text back in October and had a raft of measures in it relating to the regulation of high-frequency traders for the first time—the practice was in its infancy when the original MiFID document entered into force in 2007—notably the controversial inclusion of a minimum resting time for orders to remain valid on an exchange for at least 500 milliseconds and order cancellation charges. German MEP Markus Ferber is the rapporteur guiding the MiFID II proposals through parliament and into trialogue and is viewed as something of an evil nemesis by the HFT community.

It is believed, though, that the Council of Ministers—like that of the Commission—will fall more on the side of the HFT community and will try to push through a lot of the recommendations that were in the recent Foresight Report, which was a two-year study commissioned by the U.K. government that gathered evidence from 150 academics and experts from 20 countries and came to the conclusion that if HFT was seriously curbed then liquidity and market efficiency could disappear faster than the blink of an eye.

However, the sheer size and number of issues on the table for the 27 member states of the Council of Ministers to decide upon regarding MiFID II means that the discussions could conceivably drag on for a good few months yet and possibly into the presidency of Lithuania or even Greece.

And if this were to happen then the parliament, led by Ferber, could take center stage in negotiations due to a potentially weak Council of Ministers presidency. This is something that FIA Epta fears.

MiFID II was initially expected to become law some time next year, but these latest delays are pushing things out still further.

“By my estimates, the most likely timeline and implementation of MiFID II and all of these rules is likely to be January 2015,” said Kay Swinburne, a U.K. MEP who has been heavily involved in the MiFID II discussions in Brussels, in a recent speech in London.

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