Jul 26, 2012
Prop trading body tackles market abuse
The Futures Industry Association’s European Principal
Traders Association (EPTA) has drafted a best practice document to help high-frequency
trading (HFT) firms prevent market manipulation.
The EPTA, an industry body comprising proprietary
trading firms that account for a large proportion of trading activity on
European trading venues, said the document includes recommendations for hiring
and training employees; detecting market manipulation through monitoring, alerts,
record keeping and internal reviews; access and oversight of systems; pre-trade
risk management requirements and; trade and post-trade risk management issues. It
follows two previous sets of guidance covering risk controls led by the
Proprietary Trading Group – the US arm of the organisation – and change
management; best practices related to software development, release and
testing.
The organisation said its paper was intended to help
firms establish internal policies, procedures and codes of conduct, and build
on a similar guidance from the European Securities and Markets Authority (ESMA)
that came into force in May.
The ESMA guidelines cover the use of electronic
trading systems, including algorithms, by investment firms and the provision of
direct and sponsored access.
“These guidelines can be used by regulators as
the basis for related areas of supervision and are intended to go deeper than
existing regulatory and industry guidance,” Remco Lenterman, chairman of the EPTA, told theTRADEnews.com. “We’ve drafted these best practices to help firms prevent market
manipulation and manage risks. Market manipulation is not only morally
reprehensible, but also carries a hefty price tag for the market, in particular
for those that are providers of liquidity.”
In addition to the ESMA guidelines, European policymakers are considering curbs on HFT activity through MiFID II. These may
include a ban on direct access to markets, minimum resting periods for orders
and order-to-trade ratios for exchanges. The EPTA has backed the use of
order-to-trade ratios, subject to close industry collaboration, but has raised
concerns that the imposition of minimum resting times could damage the quality
of liquidity.
Anish Puaar
+44 (0)20 7397 3817
anish.puaar@thetrade.ltd.uk