ESMA dilutes the new regulations for HFT

High-frequency traders just caught a break in Europe, where it’s now easier to escape stricter rules for market makers.

This week ESMA revised proposals for overhauling the 28-nation financial markets. For traders, there’s a change from their previous plans: You’re not considered a market maker … and therefore subject to new obligations … until you’re supplying bids and offers for a given stock or financial product for half the trading day. Before, the threshold was only 30 percent of the day.

On major exchanges around the world, high-frequency traders are among the dominant suppliers of liquidity, the role played by traditional market makers. They have, however, faced criticism that they don’t stick around during times of turmoil, potentially exacerbating losses for others. The European rules are aimed at easing that concern by making high-speed firms more accountable.

On Monday, the European Securities and Markets Authority diluted the regulations, reacting to criticism that trading firms with no intention of being market makers could inadvertently be swept up by the rules, prompting them to stop trading an asset or to flee exchanges altogether. Another worry is that the administrative burden could drive some companies out of the market, further reducing trading.

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