EU algorithmic trading curbs risk 'exodus'
Tuesday 1 November 2011 - by Will Henley
Proposed EU curbs on algorithmic trading could provoke an "exodus" of traders from European financial markets, according to industry experts.
The new directive imposes liquidity requirements and introduces circuit breakers and other mechanisms to slow orders. Yet crucially it also states that traders using algorithmic strategies must be "in continuous operation during trading hours" - up to 22 hours a day in some contracts.
According to Laurence Walton, director of regulatory policy at the New York Stock Exchange's global derivatives trading arm NYSE Liffe, restricting the ability of firms to dip in and out of the market could force many firms to simply turn their backs on Europe, while other market users will be hit by reduced liquidity and limited capacity to hedge.
"Whereby firms today can enter the market at their own free will and withdraw at their own free will, [under current proposals] depending on their risk profile, if a firm's trading is regarded as algorithmic in nature it would have to be present in the market - open to close - regardless of how volatile the market is and what conditions are," Walton says.
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