European securities regulators are consulting on the technical details of forthcoming new rules designed to prevent abusive trading, including predatory high-frequency trading (HFT) strategies.
The European Securities and Markets Authority (ESMA) Tuesday launched a consultation on the details of new rules that aim to expand the region’s regime to prevent market abuse to new products, trading venues, and trading strategies. The new framework, which is slated to take effect in July 2016, is being introduced “in order to keep pace with new trading platforms and technologies in financial markets, which, besides offering new opportunities, may also result in new possibilities for abusive behaviour.”
The ESMA says that the technical proposals released Tuesday “address the potential for a financial instrument to be manipulated not only by executing transactions on a trading venue, or across different venues, but assume that manipulation or attempted manipulation of financial instruments may also consist in placing orders which are not executed.”
It also notes that manipulation can occur outside a trading venue, or through the use of algorithms, including predatory high frequency trading strategies. To deal with these emerging risks, the ESMA says its new regime will strengthen the existing framework by defining how to address these new markets and trading strategies, and by introducing new requirements.
Two consultation papers were published Tuesday, which cover areas such as indicators of market manipulation; the prevention and detection of market abuse, including suspicious transactions and order reporting; acceptable market practices; disclosure requirements for buybacks and insider dealing; and, measures concerning investment recommendations, including the avoidance of conflicts of interests.
The consultation is open for comment until October 15.