FESE Response To IOSCO Consultation On The Impact Of Technological Changes

Significant technology advancements have such as high frequency trading (HFT) which allows more accurate, granular and faster pricing of securities. As pointed out in the consultation report, there is no clear evidence of consistent negative effects of HFT. Following the US Flash Crash - the roots of which are, for various reasons, specific to the US - the focus has shifted to HFT and the potentially detrimental effects it may have on already volatile markets. In this regard, FESE welcomes this opportunity to outline the provisions taken by its members to foresee such problems and the tools that they have put in place to safeguard against this.

FESE believes that due to the high fragmentation in European capital markets brought about by competition, and the significant growth of dark trading in European equity markets, any failure to fully implement the correct trading venue rules will see a significant number of venues in Europe, such as Broker Crossing Networks/Broker-Dealer Platforms, which are not regulated in the same manner and to the same standards as trading venues. This unexpected increased fragmentation will no doubt have a negative effect on price formation. The fact that not all trading platforms are regulated in the same way also needs to be taken into account when designing policies to address the potential risks of HFT, which, in different forms, takes place in all venues, including OTC. 

FESE agrees with IOSCO's interpretation of HFT as not a trading strategy in itself, but as a technology that encompasses a variety of trading strategies. It is important to note that in Europe, a large portion of existing RMs and MTFs already have risk controls (such as circuit breakers and stress testing) in place. FESE agrees that there is nothing intrinsic to HFT that leads to market abuse and that we have not seen any material evidence to imply this is systematically the case. Like any other trading activity, trading strategies using HFT may involve market abuse when not monitored properly and managed through the relevant controls in place.


 FESE Response to IOSCO Consultation on Market Integrity and Efficiency _FINAL.pdf