Algo ahead & make some predictions about FTTs in 2014

A recent article caught my attention on the topic of FX markets regulation, lately a hot-button issue here in Europe.

As Christian Voigt rightly pointed out recently on Fidessa’s Regulation Matters blog:

“Although it is widely accepted that MiFID II will implement new regulation on algorithmic and high-frequency trading, that doesn’t seem to have stopped the law makers indulging in a little ‘front-running’ of their own. First, Germany passed its HFT Act ahead of schedule and now France seems to be jumping the gun too with this week’s updates to the French banking law.”

Paris and Frankfurt may have gone ahead of the pack but this increased regulation will also naturally fall at the doorstep of (arguably) the home of European FX and HFT trading community: London.

In addition, the recent introduction of the Financial Trading Tax (FTTs) has led many to believe the watchful eye of European financial regulation may be fixed in the UK’s direction.

Seemingly everyone has a view on this and as pointed out by the HFT Review, there is debate over who these sorts of transaction taxes punish; the end investor or the banking community.

Planned for introduction by the European Parliament by 2015, MiFID II aims to further strengthen the (European) single market and ensure its resilience. According to the FCA, The Markets in Financial Instruments Directive or MiFID is a wide-ranging directive designed to promote a single market for wholesale and retail transactions in financial instruments.

But I tend to agree with those commentators who claim increased regulation could be a massive challenge for many in the FX and HFT trading community. I’m not alone in my fear that new rules may be sprouting up too far and too fast on this burgeoning market, as just a few weeks ago MPs discussed the real possibility of a transactions tax to be imposed on UK HFT practitioners.

With an increased regulatory whip wielded by governments (and Brussels), there is very real danger that FX market volume could start to bleed away from London. New trading markets could establish themselves quickly in emerging markets, particularly in the Middle East, or the more established AsiaPacific centres such as Singapore, Hong Kong or Tokyo, all of which can probably be safely regarded as having a lighter regulatory touch.

Companies like Colt, can help clients navigate the technological requirements of the challenging landscape of cross-European compliance and support them as they build their Far East presence but the last thing regulation should want to achieve is to push FX business out of London.

Both FTTs and MiFID II, and the possible aftermath of their implementation, will continue to demand our attention into the next year, but right now any consensus seems a far flung notion.

This blog post orginally appeared on the TradeTech site.