HFT industry faces big regulatory risk, says European Parliament committee member

First Published 28th May 2012

Kay Swinburne, a member of the economic and monetary affairs committee for the European Parliament, expects there will be sensible proposals for fixed income rules but says she is far less confident when it comes to high frequency trading.

Kay Swinburne, European Parliament  committee member

Kay Swinburne, European Parliament committee member

"The real problem here is that this is getting too emotional. The fact that there are no facts actually doesn't bother many."

London - Kay Swinburne, a member of the European Parliament's Committee on Economic & Monetary Affairs, voiced concerns that political views based on emotion rather than facts could lead to rules on high frequency trading that made no sense.

The impact of the euro zone crisis has prompted awareness of the implications for liquidity in the sovereign bond market and has made politicians cautious, particularly with regard to pre-trade transparency requirements, Swinburne told a TradeTech swaps and derivatives conference.

"I'm confident that we're going to come to a workable solution on the fixed income space because everybody's terrified about getting it wrong. But when it comes to high frequency trading, I'm nowhere near as confident that we're going to get sensible political consensus," she said.

"The problem I've got with HFT is the lack of evidence," she said. "I come from originally a scientific background and I just cannot understand how anybody can pretend to think or legislate when they have no idea what the facts are. The real problem here is that this is getting too emotional. The fact that there are no facts actually doesn't bother many."

Swinburne noted, for instance, that the Greens have called for a host of rules such as a 30-second minimum holding period, a one-second order resting period and built-in latency for trade venues of at least 100 milliseconds.

"What impact this is going to have on the overall trading they have absolutely no idea. We are very much in uncharted political territory here. All of this is in addition to the Commission's original proposal, where they suggested anybody using an algorithm for trading would need to post continuous quotes for all market users. So if you're a buy side institution trying to build up a position suddenly … you have to post quotes both ways."

Swinburne said politicians would need to work through "some of these very emotional pitches", but she expressed hope that the upcoming report from the UK's Foresight Project on computer-based trading would introduce some more fact-based information into the debate before decisions are made. The project's final report, based on a series of investigations by independent experts and academics, is due in the autumn.

Another sensitive area will be commodities derivatives, Swinburne said: "For those of you who either trade commodities as part of your portfolios or actually are part of the commodities infrastructure on the sell side, it's going to be a very political issue." This, she continued, was generated in part by the World Development Movement and Oxfam, who have believed the trading of commodities is causing higher food prices across the world.

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