09/05/18

Algo Traders Warn U.K. Over MiFID II Rules

(Bloomberg) -- Financial firms are pressing the U.K. to stick as closely as possible to the European Union’s MiFID II restrictions on algorithmic trading, warning the Bank of England against imposing even tougher rules on the industry ahead of Brexit.

Three of the biggest lobbying groups for banks and exchanges told the BOE that its proposals on algorithmic trading go beyond the EU’s standards and risk “creating operational inconsistencies and additional requirements” for firms doing business across the 28-nation bloc. Any “gold-plating” of requirements for firms to test and oversee algorithms “compromises harmonization of the legislative framework across Europe,” they said.

The BOE’s proposals, set out in February, appear to require full approval of any changes made to an algorithm, whereas EU rules state that this process applies to “substantial” updates, according to the lobby groups’ May 4 letter. The BOE should stick to the EU’s language, they said.

The groups also want the BOE to make sure it’s not exceeding requirements under the revised Markets in Financial Instruments Directive for executives to sign off on the use of algorithms.

“It is important for regulators to have aligned views in respect of their requirements for algorithmic trading so that firms can better target their resources when developing the core principles of their governance and risk management policies,” the groups said.

Equities, derivatives and other markets have become increasingly dominated by computer-driven and algorithmic trading, prompting regulators around the world to seek additional protections. The letter was signed by the Association for Financial Markets in Europe, U.K. Finance and FIA, a trade group for derivatives-trading firms.

The BOE has said it intends to apply the restrictions from June 30, less than a year before Britain leaves the European Union. While EU authorities have warned Britain against watering down regulations after Brexit, U.K. regulators have at times pursued stronger standards than those set in Brussels, such as a requirement that banks separate their retail and investment banking units.