FX industry hits out at MiFID plans on HFT

By:
Russell J. Dinnage
Published on:

The FX market should expect the cost of high-frequency trading (HFT) to increase if an EU parliament committee vote on a key piece of markets legislation on Wednesday eventually becomes law, say participants at an FX industry conference in London.

The EU Parliament Economic Affairs Committee is set to vote on an amendment to the latest draft version of the Markets in Financial Instruments Directive (MiFID). MiFID is set to become law in 2015.

The amendment would require electronic trades through exchanges in futures products, such as FX forwards, to rest on the exchange’s system for 500 milliseconds.

While largely targeted at reducing the probability of a flash-crash related to HFT in equities markets and other exchange-traded futures markets, FastMatch CEO Dmitri Galinov – whose company offers a matching system for spot FX trading – says the new rules would negatively impact the further development of HFT in currencies trading.

Galinov’s comments were made during a panel discussion on HFT at the TradeTech FX conference in London.

"Typically, regulators want to see competition, and the reason they want to push [over-the-counter futures] volumes into exchanges is because they feel if everyone has equal access, then the market will be more efficient," says Galinov.

In the FX market, fierce competition exists across a variety of traded products, including exchange-trade currencies futures without the close management of regulatory mandates, says Galinov.

And because the FX market has never experienced a flash-crash similar to ones seen recently in equities markets, the development of HFT in currencies futures transactions funnelled through exchanges or OTC spot was developed safely, he says.

"The cost of the [EU] regulations will be in compliance, which will increase because firms will have to hire compliance officers, prepare for fines and develop their technology," he says. "Nothing negative will happen to [FX] spot; it is very efficient and it will stay the way it is."

Other FX market participants were critical of MiFID in general during a panel discussion on Tuesday at the TradeTech conference.

Insch Capital CEO Chris Cruden called MiFID an "inevitable expansion of the amoeba-like growth of political control", and he said his firm is opposed to the legislation.

John Locke Investments founder and CEO François Bonnin said he disagrees with MiFID’s best-execution mandates for brokered trades. "The regulations that were in place [pre-financial crisis] were good," he said. "The regulators should just have enforced them."