Mifid Amendments Threaten HFT Platform Access

Kathy Alys stated in the FX week that a set of parliamentary amendments to the Mifid review threaten to ban ‘sponsored access’ – a popular route for high-frequency traders to access platforms without going through a prime broker.

A set of draft amendments to the European Commission’s review of the Markets in Financial Instruments Directive (Mifid) threatens to ban sponsored access to electronic trading venues; a model that has gained increasing popularity with high-frequency traders (HFT) as a means of cutting speed and costs.

The amendments were made earlier this month by the European Parliament’s Economic and Monetary Affairs Committee (Econ), which defined sponsored access as an arrangement where “a member or participant of a trading venue permits a person to use its trading code so the person can transmit orders electronically under the investment firm’s trading code to a specified trading venue without the orders being routed through the investment firm’s internal electronic trading systems”.

Addressing article 17 of the Mifid review, which covers algorithmic trading, Econ suggests adding high-frequency trading to the scope of the section, and amends section 4 to rule that investment firms shall not provide sponsored access to a trading venue. That proposal must still gain the support of the full Parliament, as well as the European Commission and the Council of the European Union, but the suggestion has stoked debate among prime brokers and platforms, whose models could stand to be affected by a ban on sponsored access.

“The ban of sponsored access, which I introduced in Article 17 (4), goes hand-in-hand with the new provisions regarding high-frequency trading. There is a consensus in the European Parliament that we need to establish proper rules so that the increased use of technology over the past years does not harm the markets. Therefore it is appropriate to ban sponsored market access in order to make sure that investment firms have sufficient controls in place so that all market participants can be identified. Because then they can also be made responsible if they cause disorderly market conditions,” says Markus Ferber, a German member of the European Parliament and Econ’s rapporteur for Mifid.

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