UK regulators concerned that EU legislators will close off “legitimate” trading activities
Regulators in the UK are concerned that some European governments will force through regulations that will close off legitimate market practices such as algorithmic trading because they do not fully understand the markets, said a panellist at the TradeTech event in London.
Tim Rowe, head of the trading platforms and settlement team at the UK’s Financial Conduct Authority – one of the new replacements for the former Financial Standards Authority – said that “there are people in the regulatory/legislative community that are concerned about high frequency trading, dark pools and price formation”. While these are legitimate concerns, some are pushing, for instance, to ban algorithmic trading because they wrongly conflate it with HFT, or to completely outlaw dark trading.
“What has concerned us in the UK is saying to them, ‘what is it that you actually want to do?’, and draft something that can address that, while allowing people to trade in the dark where there is a legitimate reason, or use algorithms,” he said. “It is still a live topic.
Rowe said that “by its very nature” regulation lags behind the market. “What we have is two streams of evolution meshing together; it is an evolving market and regulation is catching up,” he said, adding that as the industry has become less siloed, regulators have faced the challenge of defining what participants actually do. For this reason, for example, the concept of Multilateral Trading Facilities was introduced in MiFID, to create a “bucket” into which the regulators could put operations that behaved as though they were exchanges but weren’t regulated.
Other panellists in the same session said that the evolution of the market is in part dictated by regulation, but other factors come into play. François Bonnin, chief executive of buy-side firm John Locke Investments, said that globalisation and technology are playing a big part, but the key changes he sees is that “traders are becoming more like engineers” – using the French term for what English speakers would more often call quants. “Will it become a world driven by engineers? No, because it is also driven by human emotions, but I am seeing the industrialisation of my industry”.
Paul Bowes, head of business development for equities feeds and platforms at Thomson Reuters, echoed this. “Certainly at the trading desks I go to, the geeks are in charge – by which I mean that they are more likely to be quants,” he said.
Michael Seigne, managing director equities, Goldman Sachs, said that while the constant flux of technology and regulation were drivers, all sides of the industry are facing a similar underlying requirement. “The challenges are the same,” he said. “The requirement is for a reactivation of liquidity, but in a much more efficient way, and then asking how efficient we can be with those tools – liquidity, efficiency and effectiveness is what we are looking for.”