Regulations proposed in the consultation paper on the EU’s Markets in Financial Instruments Directive (Mifid) are likely to have a serious impact on algorithmic trading, which is one of the strongest sources of growth for many derivatives exchanges.
Under the proposals, published on Wednesday December 8, traders would have to give regulators information about their algorithms, including explanations of each algorithm’s design, purpose and function.
The rules also say that either trading firms would have to keep orders on the order book for a certain amount of time, or the ratio of a firm’s orders to transactions executed would be capped. Both these levels would be set by the European Securities and Markets Authority, the new pan-European regulator.
The new regulation would also require that firms wishing to carry out high frequency trading over a certain quantitative threshold, as yet unspecified, be authorised as...