The regulation holiday effect

Global harmonisation of financial regulation is high on the wish list of many trading firms and, in one sense at least, the regulators in Europe and the US are pretty well harmonised. Both have a tendency to publish long-awaited documents right before major holidays. Last week we saw another example of the regulation ‘holiday effect’ with the CFTC publishing its consultation... Read More

No summer break for MiFID II

You may have noticed that the MiFID II Regulatory Technical Standards (RTS) continue to roll off the press at a steady pace signalling finalisation of the Level 2 detail. Last week alone seven RTS documents were adopted by the European Commission, including the long-debated RTS 2 on non-equity transparency and also an RTS on registration of third country firms which could become... Read More

The great negotiation

With the Brexit hangover slowly starting to recede it is perhaps time to start focusing on the road ahead. Regarding the immediate future there is at least some certainty, as we can assume that implementing EU regulation in the UK will progress regardless. Both the FCA and the European Commission have correctly pointed out that the UK remains a full member of the EU, with all its... Read More

Phew! No more HFT for me

Some might remember the surprise, back in March 2012, when it became apparent that an individual personal trader could end up being classed as a high frequency trader (HFT) under MiFID II. Admittedly I’m quite proud of my 10 finger touch-typing skills, but I wasn’t sure whether my ability to type really fast could be held against me one day. Finally, after four years,... Read More

So much to do, so little time

This week’s closing date for the ESMA consultation, which sets out amongst other things a non-exhaustive list of transaction reporting examples as Level 3 guidance, is a keen reminder of just how much there is to be done for MiFID II. This hefty document, published in December last year, is a crucial step that will allow the implementation to pick up some pace over the coming... Read More

A brief history of on/off-exchange

Hailed by legislators as the new framework to close loopholes, MiFID II will see OTC trading face new restrictions, most importantly in the form of the Systematic Internaliser (SI) and the new trading obligations. As the fog slowly lifts, it’s becoming apparent that these new restrictions could impact market structure in surprising ways. A more detailed analysis shows that... Read More

Who watches the watchmen?

With much of the new financial regulation being passed and implementation for most of it in full swing, supervision is likely to gain more attention in the coming years. Since investment firms and infrastructure providers are largely supervised by national competent authorities, it raises the question who watches the watchmen? In ESMA’s 2016 work programme, the authority... Read More

New year, new regulations

Throughout 2015, many in our industry would no doubt have agreed that MiFID II was fast becoming the single most important EU legislation initiative. With the unofficial – but likely – delay until January 2018, the impact of MiFID II remains far-reaching, but at least this may allow for a more orderly implementation. As the new year begins, it’s time to review... Read More

A second chance for the SI?

Looking back at MiFID I, the Systematic Internaliser (SI) didn’t really take off, resulting in a meagre 1-2% market share in the FTSE 100 today. Many EU countries had different models to execute or internalise order flow, leaving the SI model on the shelf like a dented can of beans. Under MiFID II, Brussels will take a stricter approach by introducing quantitative SI thresholds... Read More

All together now…

A common approach will be key to minimising the fallout of MiFID II implementation, particularly around the extra data required for record keeping and transaction reporting and for algo identification. I’m hopeful that the ‘final’ Technical Standards due next month will have at least dropped requirements to include static data. Do we really need multiple systems storing... Read More

Ranks of cross-border issues swell

Payment for research and unbundling has been on the European regulatory agenda for some time. It has now escalated to a cross-border issue after concerns were raised with the US SEC by a senior US politician worried about the impact on US growth industries. The recent past gives us plenty of examples of cross-border issues from both sides of the Atlantic – the US person under... Read More

MiFID II data disaggregation – be careful what you wish for!

Under MiFID II pre- and post-trade data is required to be made available in an unbundled fashion – ultimately the regulator is aiming to drive down data costs. So where trading venues sell their pre- and post-trade data in the same ‘package’ they will be required to also make it available separately at a reasonable cost. Setting aside the cost discussion, the whole... Read More

ESMA stops short of a no-action letter

Having taken several years to get through the review of MiFID, it was interesting to hear from ESMA chair Steven Maijoor last week that there is an appetite to “explore the mechanisms to address regulatory adjustments in a flexible and agile manner”. Neither national authorities nor ESMA have any tool like the ‘no-action letter’ employed in the US. Given that the rules... Read More

Left in the dark

Currently, it doesn’t really matter whether dark trades are executed under the reference price waiver (RP), large in scale waiver (LIS) or a negotiated trade waiver (NT). However, under MiFID II, the waiver flavour will make a significant difference. Whilst RP and parts of NT will become subject to the clunky double volume cap, LIS will not, so we may expect to see an increase... Read More

Change is the only constant

The unbundling of payment for research is a top concern for the industry. There seems to be general acceptance that, one way or another, Europe is set on the soft dollar research market becoming a hard dollar one by January 2017. Despite calls for more clarity and the recent publication of the FCA discussion paper on the regime, opinion remains divided as to how the use of CSAs... Read More

Holding a steady course

Having spent the last three months buried under a deluge of MiFID II consultation pages, the real world looked quite different when I came up for air recently. Since ESMA published the consultation back in December, Greece has elected a new prime minister, Star Trek has sadly lost the original Mr Spock, Madonna fell off a stage and a whole new season of House of Cards is available... Read More

On a quest for answers in Paris

Travelling to Paris today for tomorrow’s open hearing on MiFID II, the two issues I’ll be mulling over on the Eurostar will be record keeping for trading venues and transaction reporting. Both could potentially trigger significant changes in front and middle office workflows for many trading firms. At the core of my concerns lies the requirement for trading venues to... Read More

One step forward, one step back

Market making, at its core, is a simple exchange where the market maker gives immediate liquidity and takes the bid/ask spread in return. This is set to become much more complicated in MiFID II as ESMA is mandated to introduce market making obligations. Under ESMA’s latest draft investment firms using algorithmic trading for market making for at least 30% of the available trading... Read More

Return of the concentration rule

A long time ago in a galaxy far, far away… It is a period of calm, with primary exchanges enjoying relatively little competition thanks to concentration rules enforced in many EU countries requiring all equity business to be conducted on exchange. The arrival of a new disruptor, in the form of MiFID I, is about to turn their lives upside down forever. The blanket ban on concentration... Read More

No time for sentimentality

Whether it’s Windows 8, OS X 10.10 or Android 5, modern life beats to the drum of big software releases. Since any new EU regulation includes an automatic review clause, financial markets legislation is already following a similar pattern. With the ink barely dry on ESMA’s latest technical advice and consultation for MiFID II, it’s not a question of if we’ll... Read More

Slave to a label?

ESMA has just published a report on high-frequency trading (HFT) activity in EU equity markets. It’s good to see the regulator producing an empirical study on such a hotly-debated and emotive topic. Taking a sample of European stocks, and applying two possible definitions of HFT, ESMA estimates that between 24% and 43% of value traded is done by HFT. This sounds like a nice... Read More

Systematic Internaliser on a wire

MiFID II imposes simple categories on a complex trading landscape, such as on- and off-exchange, or multi-lateral vs. bi-lateral. Obviously having some rules helps unravel complexity, but too many kills innovation. Walking this tightrope is not easy. Internalisation comes in two flavours. Either you have an order from a customer, agree a fixed price and then try to unload the position... Read More

Synchronising regulation

US securities industry regulator FINRA recently implemented new time-stamping rules, a topic also on ESMA’s MiFID II task list. FINRA requires US firms to express time in milliseconds when reporting trades to the FINRA facilities and order events to OATS, while ESMA’s proposal wants HFT firms to timestamp records to the nanosecond. That’s a whopping one million... Read More

Stuck between a rock and a hard place

First proposed way back in 2011, work has been ongoing to narrow down the details of a common financial transaction tax (FTT) to be introduced across Europe. Back in May this year, all but one of the 11 member states keen to push ahead had agreed that by the end of 2014 it should all be worked out and the new tax phased in by the end of 2015. But according to the EU’s recent... Read More

Turning down the heat on dealing commission

As the FT reported earlier this week, ESMA is set to step back from imposing a much contested overhaul of dealing commission. The scrutiny of commissions has been a major concern for the buy-side, in particular ESMA’s proposals to classify all but the most generally available investment research as a non-monetary benefit. This effectively implies the ‘unbundling’... Read More

Refocusing on auctions

BATS Chi-X Europe recently announced plans to introduce opening and closing auctions for ETFs, while the LSE plans to introduce an intraday auction for all SETS equities. Although these moves differ in instrument scope, they seem to have a common aim. The buy-side has long complained about the increasing difficulties of executing large block trades. With the new double volume caps... Read More

Whatever happened to the surveillance beast?

When Level 1 of the Market Abuse Directive (MAD II) was discussed two years ago there was talk of ESMA potentially establishing a massive centralised database for cross-market monitoring, aka the surveillance beast. Interestingly, this idea didn’t make it into the final MAR text. Instead it calls on each regulator to have in place the necessary tools for effective cross-market... Read More

What I did not do

When I got into work this morning, I decided not to return a missed call, not to review a document, not to read a report, not to ask some colleagues for advice, not to fill in my timesheet for last month, not to think about further job training and, most importantly, not to join an internal weekly meeting which was covering a topic not relevant to me. Instead I decided to write... Read More

Wanted: Home for OTC trading

With MiFID II’s stated aim to push OTC trading (where appropriate) onto regulated platforms European market structure is undergoing considerable upheaval. As the first round of Level 2 consultation has just finished it’s now time to define what OTC trading is appropriate and where it can be executed. While double volume caps somewhat restrict the use of transparency... Read More

Pre-emptive compliance

MiFID II brings with it some significant changes to the Systematic Internaliser (SI) regime. Most importantly, ESMA will introduce quantitative thresholds that determine when a firm is obliged to obtain an SI licence. Given that these thresholds are based on average values across the previous quarter, it all looks pretty sensible and most likely to impact only the larger firms.... Read More

Data jigsaw

Under the European Short Selling Regulation (SSR) uncovered short sales are banned and investment firms are required to track their net short positions and report them to relevant authorities/the public if they breach certain thresholds. Implementing this is already quite a tall order, but things could potentially become even more onerous in light of the requirement to flag short... Read More

Please lock the door behind you

Under MiFID II European regulators introduce new rules around algorithmic trading. Whether it’s algo IDs, enhanced audit trails or business clock synchronisation, none of these items would have been on the agenda if it were not for the rapid innovation in information technology over the past decade. Now ESMA is extending its reach into cyberspace, discussing issues such as cyber... Read More

Tour de Force

The current MiFID II consultation is infamously complex, covering 800 pages and 800 questions to be answered in 8 weeks. If that in itself is not enough of a challenge, ESMA invited all market participants to Paris this week for a two-day Tour de Force, aka public hearing. Be it equity, non-equity, pre- or post-trade transparency, SIs, OTFs, trade reporting, third country regimes,... Read More

Oh, for some goal-line technology!

With the new technology in place for the World Cup in Brazil, long and unsettled disputes about whether the ball was in or out are a thing of the past. Discussing the scope of MiFID II with some market participants, I really wish we had an equivalent technology in financial markets. MiFID II states that certain firms dealing on their own account are exempt from MiFID II, while... Read More

Before you head for the beach…

As the i’s are dotted and the t’s crossed in the MiFID II Level 1 text ahead of its June publication in the EU’s Official Journal, ESMA is already gearing up for Level 2. In order to produce all the required documents ESMA is expected to run two consultations, one for the advice on the delegated acts – for which MiFID II’s entry into force triggers a six... Read More

Any port in a storm?

With the European Parliament’s formal adoption of MiFID II in yesterday’s plenary session, the next fundamental industry overhaul is on the horizon. Away from all the noise around HFT, I’ve been looking at the new trading obligation for investment firms that requires them to undertake all trades in shares on a regulated market or MTF, or as a systematic internaliser... Read More

What role for OTFs?

Last week the CFTC published another no-action letter with respect to trading swaps on a European MTF. At the heart of the discussion is the question of whether European MTFs can be considered as equivalent to US SEFs. Given that a number of banks within the scope of Dodd-Frank also need to trade swaps within Europe, this is an important issue. In Europe, the discussion around swaps... Read More

A consolidation of data?

So what does MiFID II finally say about the consolidated tape? If you remember the story so far, a number of Consolidated Tape Providers, or CTPs – each authorised to operate the data reporting services – are supposed to compete to provide said tape. And if you ever wondered what the collective noun for a group of CTPs is, it appears to be ‘an authorisation’.... Read More

Reporting, reporting, and yet more reporting

While many European firms are still getting to grips with EMIR trade reporting and the headaches it’s caused, the next reporting challenge is already on the horizon in the form of MiFID/R. It helps that MiFID/R does not require double reporting as long as the required information is reported once under EMIR. However, aiming to strengthen transparency, the scope of MiFID/R’s... Read More

Prepare yourself, MiFID II has arrived!

Yesterday the Council of the European Union published the long-awaited texts for MiFID II and MiFIR as agreed by the Council and the Parliament on 14th January. Whilst the texts are still subject to ECON and Plenary votes in March and April, and the Commission has some outstanding concerns about the derivatives rules, it’s likely we will all have to implement the rules outlined... Read More

Trading safety measures pay off

The eagerly awaited final MiFID II text potentially includes regulation around circuit breakers. Yesterday Eurex saw trading in the FDAX drop by 2% within minutes of an ECB announcement, only to recover shortly after. It’s safe to assume that the circuit breaker prevented a more serious situation. Even with a reliable and secure market structure and tightly defined corridors,... Read More

Patience is a virtue

Last week’s announcement of the political agreement on MiFID II felt like the Gordian knot had been cut. Maybe 2014 will turn out to be the year when the regulatory uncertainty that dominated 2013 gives way to thrilling new opportunities. Amid all the excitement (and relief that MiFID II will escape the feared entanglement in the upcoming European Parliament elections), it... Read More

Do not pass go, do not collect £200

It’s full steam ahead for the review of the Market Abuse Directive. At the end of 2013 the European Parliament and the EU member states reached a final agreement on MAD II that will cover offences such as insider dealing, market manipulation and unlawful disclosure of information. For the first time criminal sanctions will apply to serious financial market offences at an EU... Read More

All I want for Christmas

It seems there’s to be no early MiFID II Christmas present as agreement on the Level 1 text slips into 2014. Publication of the final text is now hotly anticipated to be in January or February next year at the latest, to avoid running into the European parliamentary elections in May. Thereafter, as ESMA gets to grips with the tasks ahead, 2014 will bring discussion papers and... Read More

Hitting the bullseye

According to recent press articles, the MiFID II trilogue has agreed on capping dark trading at an arbitrary 4% per venue and 8% overall market share. At the heart of the discussion around dark trading lies the role of transparency in the wider market. While one side claims that transparency is the only thing that can keep fragmented markets efficient, the other side worries about... Read More

Congratulations, you’ve (almost) reached Level 2

With the election of the European Parliament scheduled for May 2014, the Level 1 texts of MiFID II, MAD II and CSD Regulation are likely to be agreed before then. This means that next year will be all about drafting and agreeing the Level 2s for those laws. ESMA kicked things off at the end of last week, publishing the first discussion paper on the implementation of the Market... Read More

Time is of the essence

Last weekend heralded the official end of summertime as the EU put its clocks back one hour. Since most electronic clocks are updated automatically many of us hardly notice the difference, but others may be forgiven for waking up somewhat confused as to what time it really is. I guess that must have occurred to the legislators in Brussels when discussing the possibility of imposing... Read More

Inching closer to the goal

ESMA’s work on the single rule book for EU financial markets, set out in its 2014 work programme, shows the bulk of MiFID II/MiFIR deliverables falling into the last quarter. With the Level 1 text still expected to be agreed by the end of 2013, the revision of MiFID and MAD will then unfold into advice, technical standards and guidelines over the following year. I’m interested... Read More

Identity crisis for algos

Yesterday saw the publication of the XETRA and Eurex rule changes relating to the German HFT Act in which they provide details of how to implement the new RegulatoryID. Under the new rules it will no longer be enough simply to differentiate between algo and non-algo orders (such as under the current CME regime). Starting from 1st April 2014, all orders sent by an exchange member... Read More

Value for money

The long list of topics to be tackled by ESMA in MiFID II Level 2 is laid bare in the EU regulator’s latest banking and investment services tender document, with submissions due by the end of this week. ESMA is seeking help with data gathering and analysis on a number of fronts, not least in order to specify detailed organisational requirements to be imposed on investment firms.... Read More

Next Stop St. Petersburg

Back in 2009, in the wake of the financial Armageddon, world leaders pledged in their G20 commitment in Pittsburgh that all standardised OTC derivative contracts should be traded on a platform and centrally cleared by the end of 2012. Fast forward four years and the next G20 summit takes place in St. Petersburg, Russia at the end of this week – the first meeting since the... Read More

Confusion reigns over FTT

I had the pleasure of attending the Sixth Erasmus Liquidity Conference in Rotterdam earlier this week. As well as presenting the first Fidessa Doctoral Student Award for outstanding research to Rémy Praz, I also participated in some very interesting discussions between regulators, academics and practitioners. In one of the sessions the EU’s Financial Transaction Tax and its... Read More

If it looks like a duck…

Dividing derivatives contracts into over-the-counter and exchange-traded would seem to be a simple task, but this is far from true. Thanks to EMIR’s definition of ‘on-exchange‘, contracts that are traded on anything other than a regulated market (RM) will be considered OTC regardless of whether they are traded on an MTF or are economically equivalent to the on-exchange... Read More

Anti-price discovery tax

This week saw the publication of the European Parliament’s amendments to the EU Financial Transaction Tax (FTT). As reported in the press, lower rates (until 2017) for sovereign debt and pension funds have found their way into the proposal. Unfortunately, some very unpleasant surprises crept in as well. According to the Parliament, firms engaging in high frequency trading... Read More

UCITS V – the debate rumbles on

The European Parliament vote on amendments to the UCITS IV Directive has been delayed. UCITS V, as it will be known, covers three main themes: depositary functions, regulatory sanctions and remuneration requirements. It’s the latter that no one can agree on, with bonus payment caps proving particularly contentious. Sven Giegold, the European Parliament’s Rapporteur on... Read More

Is it that time already?

It’s a little over a year since the introduction of European Short Selling regulation and already it’s time for the European Commission to prepare its review. With its report due by the end of this month, the Commission has asked ESMA to provide some technical advice. Not surprising to practitioners, but maybe to politicians, ESMA observed mixed effects on liquidity... Read More

MiFID II takes a leap forward

Hurrah! Looks like the Council of the EU has finally agreed a common approach on MiFID II/MiFIR after 18 months of negotiations. Subject to EU formalities next week, yesterday’s agreement comes just two weeks before Ireland hands the Council presidency on to Lithuania. The trilogue process – European Commission vs European Parliament vs Council versions – can now get... Read More

Half a job

MiFID, the mother of all European financial regulation, rumbles on and on. The European Commission’s MiFID II consultation in 2011, the Ferber Report in March 2012, and the European Parliament vote in October 2012 were all highly anticipated and widely reported on. But despite the fact that the Council of Ministers has published more than 20 different drafts during the Cyprus... Read More

Double whammy

The latest published version of MiFIR is narrowing waivers, while widening its impact. Specifically, it has added a double cap limit to the pre-trade transparency reference price waiver. Limitations that may apply to the 4 existing waivers continue to evolve even as the Irish presidency of the Council of the European Union enters its final month before handing over to Lithuania. Article... Read More

The long arm of the law

The buy-side has traditionally been spared from the burden of most regulatory trade reporting requirements, passing this responsibility on to their brokers who hold the exchange memberships. But this principle looks to have been challenged by BaFin, the German financial regulator, with the introduction of its High Frequency Trading Act. One of the aims of the law is to ensure that... Read More

Keeping to the letter of the law

Earlier this week BaFin, the German regulator, held a workshop on the German HFT Act. Global market participants gathered in Frankfurt to discuss and better understand the implications of the soon to be passed law. Questions around the definition of HFT, registration as an HFT firm when operating from abroad and the identification of algo orders were on everyone’s list. Fortunately... Read More

One firm, two guv’nors

Making a living as a market maker is no easy task these days, with low trading volumes and the increasing regulatory burden tending to wipe the smile from many a trader’s face. Market making certainly has some perks, though, with exemptions from the European Short Selling Regulation, UK stamp duty and the Italian Financial Transaction Tax. Then again, where the MiFID II draft... Read More

If it moves, tax it!

The proposal for a Directive implementing enhanced co-operation in the area of financial transaction tax (aka the EU FTT), with its eye-wateringly broad scope, will have to be churned through the legislation mills PDQ if it’s to meet its overly ambitious timeline. The would-be tax applies to all transactions where a counterparty is established in one of the 11 participating... Read More

A cry for help

More and more industry representatives are complaining about the politicisation of the rule-making process in financial markets. In Europe, politicisation has triggered some absurd episodes, such as the proposal for the greatest uncontrolled financial market microstructure experiment in the world (aka the minimum resting period of 500 ms) and the introduction of short selling bans... Read More

Consolidated tape – work continues

After endless discussions all over Europe, there is still massive confusion as to which European Consolidated Tape (ECT) model MiFID II will bring and when. Despite the uncertainty, the creation of a consolidated tape for equities remains firmly in the MiFID II text and on the buy-side’s wish-list. Behind the scenes of the ever-lengthening MiFID II timeline, and regardless of... Read More

MAD as a March hare

The reviews of the Market Abuse Directive (MAD II) and proposed EU Market Abuse Regulation (MAR) continue to run their course through the European trilogue process, with final Level 1 agreement expected to keep pace with the MiFID review spanning out into the second half of 2013. MAD II and MAR will bring increased obligations on firms, including criminal sanctions, in the event... Read More

You can’t have your cake and eat it

Extraterritoriality agreements are important for many firms because they can reduce the burden of redundant and conflicting rules across different countries. Last November, considerable concerns were voiced by numerous regulators around the globe with regard to the CFTC Cross-Border Guidance relating to the US swap markets. Among the protestors were representatives of the European... Read More

Bless me, Father, for I have changed my algo

Managing algorithmic trading will become more difficult in the future. Regulators have already suggested in recent drafts of MiFID II and the German HFT Act that algos need to be registered/earmarked and their functionality reported to the competent authority if requested. The European Parliament (EP) takes the requirement a step further in its draft in Article 10a in MAR. Here,... Read More

Pick a model, any model

Anyone reading the recent Presidency compromise MiFIR texts (published 4th and 13th February) can see that the subject of European Consolidated Tape (ECT) features again. The Council is now opting for appointment of one entity to collect trade reports and consolidate the data into a tape. Sound familiar? Dipping into the Regulation Matters Back catalogue I fished out the 3 operating... Read More

Is FTT heading for Wall Street?

Over the past few months, many in the US trading community have been quietly mobilizing against European Financial Transaction Taxes being collected within US borders. The voice of opposition grew louder yesterday with the Security Traders Organization (STA) calling on market participants to take action by communicating to their elected representatives their “strong opposition”... Read More

Better consult…

Drafting new legislation is difficult and consulting the industry beforehand is sensible. Granted, where financial transaction taxes (FTT) are concerned this is tricky because no practitioner has anything good to say about it. However, beyond the mere purpose of FTT, the operational implementation is at least equally important. The current Italian FTT law has a number of issues... Read More

Dude, where is my level playing field?

At the heart of the European Union is the concept of a single market with a level playing field. Markets moving together, where trade and competition create benefits for everyone. Back in 2007, MiFID was a true testament to this when it introduced the idea of passporting regulatory oversight across Europe. Reading the latest regulatory news, there’s precious little to remind... Read More

ESMA gears up for implementation

ESMA published a report last week on staffing and resources with regard to EMIR. After many years of public policy discussions and political deals, 2013 will be the year of hands-on implementation. Here are a few highlights from the document: • ESMA expects about 11 applications for Trade Repositories, each likely submitting a document between 200 and 1,000 pages long • ESMA... Read More

What’s in store for the coming year?

The European Commission adopted its work programme for 2013 (CWP) back in October, with the over-reaching aim to deliver financial stability, economic growth and jobs. In terms of new proposals, the CWP announced around 50 new initiatives to be tabled during 2013 and the first part of 2014. According to the EC President, José Manuel Durão Barroso: “The next step must be... Read More

The three (MAD) wise men

I find it rather appropriate this season that the three European bodies – the Commission, the Council and the Parliament (the latter with rapporteur Arlene McCarthy’s version) – are each bearing us a gift. Instead of the traditional gold, frankincense and myrrh, each is bringing its own take on the Market Abuse Directive. These slightly different texts will be... Read More

The state of play

As the Council of the European Union hands over to Ireland for the first trio of the 2013-2014 Presidency rotation (1st January 2013 – 30th June 2013), the outgoing Cyprus Presidency published a progress report on MiFID II / MiFIR on 13th December. This report outlines the current status of the compromise proposal negotiations, pointing out the main areas where Council agreement... Read More

Wave your waivers goodbye

Since the introduction of MiFID in 2007 the concept of the pre-trade transparency waiver has been widely accepted and applied. However, following the latest regulatory discussions, there is a danger that we may have to wave goodbye to some of these waivers with MiFID II. It seems that the regulators feel that the existing waivers are interpreted too loosely and inconsistently across... Read More

My Roman travelogue

Separate from the upcoming European Commission proposal for a financial transaction tax (FTT) under ‘enhanced co-operation’, Italy is pushing ahead with its own flavour of FTT, similar to the French tax which came into effect in August this year. It took me longer than I expected to find something sensible about the Italian proposals. Reports in the Italian media were a little... Read More

Is the grass any greener on the other side?

On 30th October the CFTC’s Sub-Committee on Automated and High Frequency Trading Working Group 1 presented its definition of HFT to the CFTC Technology Advisory Committee. This is very interesting, as the European Parliament already published its version on 26th October. Let’s compare notes across the pond. Both approaches define HFT as a sub-category of algorithmic... Read More

The liquidity genie

Following on from the warnings to the contrary from the UK Foresight publication (see previous blog Some things in life are bad…), we have had a reaffirmation (if one was needed) last Friday from the plenary vote that the European Parliament is going to proceed to target speculation and high frequency trading through their new rules and regulations. The magic of the “Liquidity... Read More

Some things in life are bad…

The next step in the MiFID parliamentary process is the EP plenary vote, to gain the backing of the entire house, scheduled for tomorrow, Friday 26th October. The EP is forging ahead, with little likelihood of further changes, it seems, though there is a debate on MiFID scheduled for today. Given where we are in the timeline of the parliamentary process for MiFID II legislation,... Read More

A sensible request deserves a sensible response

The German government and the European Commission want to mandate earmarking of every algorithmic order in order to identify the originating strategy. The reason being that market supervisors have a difficult job keeping up with all those technical innovations in financial markets. In the good old pit trading days traders were restricted by physical limitations, but in a world where... Read More

Think again, things are about to change!

Do you think a retail broker has to connect to all exchanges in Europe in order to offer best execution? Of course not! MiFID’s current definition of best execution is principles-based and takes into account more than just the execution price, but things are about to change. The latest MiFID II draft from the ECON vote contains a number of amendments that may cause you to... Read More

Brussels’ rules of etiquette

The on-going flood of new regulations and directives coming out of Brussels continues. With all its consultation papers, drafts, technical or implementing standards, recitals and articles, it is hard to keep your head above the waterline. Here are a few pointers to help you structure that paper flood into some more manageable channels. European laws and legislations are formally... Read More

And the winner is … a compromise!

Whoever said the political processes to formulate MiFID II and MiFIR were complicated and boring? Look at it from the right angle and it can be every bit as exciting as the knockout rounds of a FIFA World Cup tournament. In the World Cup football teams compete against each other and only the winner progresses. The last team remaining in the competition takes home the trophy. Politics,... Read More

Sensible timeframes please!

The final text of EMIR (European Market Infrastructure Regulation) entered into force on 16th August and the next milestone for ESMA, to complete the Level 2 text by the end of September, is fast approaching. ESMA’s consultation on the draft technical standards received over 130 responses before the 5th August deadline. Whilst there is general support for the key aims of EMIR,... Read More

Ready, set, go!

France’s AMF has published a brief statement spelling out the implications of EMIR entering into force in two days’ time. In terms of timelines these are the most important dates: August 16th, 2012 – EMIR enters into force September 30th, 2012 – deadline for ESMA to transmit EMIR technical standards to the European Commission July 1st, 2013 – Earliest possible... Read More

Germany’s “Best of …” HFT law

A Europe-wide consolidated regulatory framework can have many advantages for the financial industry. Laws such as MiFID II, MAD II and EMIR create a level playing field that simplifies competition on a pan-European scale. However, in the last couple of months a number of national legislations have been enacted that make the playing field a bit more uneven, again. There are, for... Read More

Don’t buy it, if it’s not worth it!

Back in May, BATS Chi-X Europe announced that it will start charging for market data from 1st October. Last week Turquoise followed its competitor, announcing that it too will introduce fees for market data, effective from 1st November. While the former’s move could have been explained by its strong market share, this is not the case for the latter. BATS Chi-X had a market... Read More

New month, new tax

Yesterday, 1st August (already!), the new French Financial Transaction Tax (FTT) came into effect. With the fine print of the new tax only emerging over the previous few days, we’ve now added the French FTT to our ‘At a glance‘ page to provide you with an overview. The tax, which applies to the purchase of over 100 French stocks with a company market value of more... Read More

School’s out!

OK, school’s out and the head’s advice was “…don’t do anything silly, and come back refreshed and ready for the new challenges of next year.” The European Parliament is also on its summer break and the next ECON Committee vote on MiFID II is scheduled for 26th September, with a plenary vote on the calendar for 19th  November.  There remains, however, a whole lot of... Read More

Lost in translation

Yesterday the CNMV (the Spanish regulator) and CONSOB (the Italian regulator) banned any short selling (naked or covered) in their respective markets. It is becoming more and more difficult to believe that these bans are imposed as a measure of good market regulation and not due to unrelated political considerations. On that point, a new study by Ian W. Marsh and Richard Payne analysed... Read More

We learn from history that we do not learn from history

Many people might have missed it, but between 1905 and 1981 the New York state imposed a Security Transfer Tax. The tax was based on the par value (aka stated value, or face value) of stocks traded, transferred or delivered in New York State. It was not implemented as a financial stability measure, but as a revenue generator to fund the state deficit. Following the 1932 and 1966... Read More

The horse hasn’t bolted, yet!

The Flash Crash catapulted circuit breakers into the public spotlight and showed how they (or rather the lack of them) can impact financial markets. Since then, in Europe at least, discussions have been relatively quiet. European markets are perhaps less prone than others to such massive price swings for two reasons. Firstly, Europe does not have the trade-through rule and, secondly,... Read More

Extraterritoriality, equivalence, reciprocity? It’s all Greek to me!

Following the latest MEP discussions in Brussels can be quiet challenging at times. Not only was this particular session interrupted by protesters, but MEPs kept throwing in technical terms in regard to third country regulation that not everyone might be familiar with. So here is a quick guide to cut through all the mist. Today, the access of third country firms to the EU markets... Read More

Sacrificial lambs and unintended consequences

Andy the Trader: I heard tick size is a topic in MiFID II, again. Haven’t we been through this already? Yes, you’re right. FESE and LIBA brokered an agreement between most European equity trading venues and sell-side firms in 2009. But the topic appears again in the latest proposed amendments for MIFID II (Article 51) and on ESMA’s work program. Andy the Trader: Once again,... Read More

European Regulation – A Tale in Four Acts

According to the Chinese calendar 2012 is the Year of the Dragon. But if you ask anyone in financial markets, 2012 is the year of the regulator. The latest white paper by Fidessa aims to help market participants negotiate the increasingly complex web of regulation that will result from the introduction of initiatives such as MiFID II, MAD II and EMIR. It examines some of the unintended... Read More

Obituary: Do-good Chi-X Europe

Young start-ups with highly disruptive business models usually have the luxury of having idealistic mission statements. Just remember Apple Inc. and the promise to “think different” or Google Inc. and their slogan “Don’t be evil”. In my view, Chi-X Europe was directly in that category when, many years ago, Peter Randall was screaming from the rooftops... Read More

ESMA Guidelines – turning change into opportunity

Back in December last year you may recall that ESMA issued guidelines on systems and controls in an automated trading environment. The headlines from those guidelines caused a steady ripple of activity across the industry, in the first few months of 2012, as firms reviewed their processes and procedures to ensure compliance by the 1st May deadline or worked to have a plan in place... Read More

Much ado about nothing

ESMA is currently considering providing guidelines on fee structures. This sounds to me like the regulators are reviewing the maker-taker pricing model. MTFs introduced maker-taker pricing to Europe about four years ago, whereby liquidity providers receive a rebate for executing their passive orders, while liquidity takers will pay a fee for executing aggressive orders. Usually,... Read More

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