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Germany leads, EU follows?

Published in Automated Trader Magazine Issue 34 Q3 2014

Germany's HFT Act has had implications for how the European Union is managing legislation. Intended to provide trade surveillance and identification of light speed traders, the legislation faced a bumpy ride initially. As financial markets watchdog ESMA crafts the MiFID II reforms, the industry is responding to attempts at harmonisation, putting the mechanics of the Act front and centre. Rochelle Toplensky examines the evolving landscape.

Germany's high frequency trading [HFT] Act impacted most German market participants, including firms not typically considered high frequency traders. However, a number of industry players are asking ESMA to stick with the German model in Europe's upcoming Markets in Financial Instruments Directive II [MiFID II]. Implementing any legislation on this front will require a lot more work, so many market participants want the new regulations to build on existing German compliance already in place.

"It's too early to say. I see demand to follow the German high frequency trading law as a blueprint for Europe because the effort to make it workable has been done to a large extent," said Sam Tyfield partner at law firm Vedder Price.

German HFT regulations took effect on 15 May 2013 with reporting required from 1 April 2014. The Europe-wide MiFID II regulations cover far more than the HFT act and are expected to come into force in January 2017.

The European Securities and Markets authority [ESMA] consultation ended on 1 August 2014 and while the authority wants to harmonise regulation, it will not exceed its mandate or change MiFID II level 1 detail to make it happen.

Although still early days, initial indications are that the German financial markets regulator (BaFin) is satisfied with how compliance has been taken up. Media reports quote Karl- Burhard Caspari, BaFin's chief executive director of Securities Supervision and Asset Management, as saying that the country's high frequency trade reporting was leading the world.

Torsten Schaper head of Political Analysis at Deutsche Boerse, a German exchange said: "From our talks with market participants and regulators on this: all are content with the solution that is implemented so far."

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