The questionnaire sent out by the new pan-European body representing the bloc’s national securities regulators is part of its fact-finding drive to help “better understand” the impact of high frequency trading strategies on the “functioning of the markets as a whole” and associated risks.
It is intended to help ESMA “better understand high frequency trading strategies and the impact of these strategies on the functioning of the markets as a whole, including the risks associated with HFT”, says the questionnaire. The document has already caused unease among some firms, which are nervous about disclosing their proprietary trading strategies to regulators. “Our compliance guys are having some trouble with this,” said a source at one automated trading firm.
ESMA has asked firms about their trading strategies, the speed at which trades are done, the development of algorithms and systems and controls that firms may use to prevent “misuse and errors.” Firms are asked to “describe the trading strategies you employ”, and “to which asset classes” these apply, including cash equities, equity derivatives, equity-index based derivatives and exchange-traded funds. ESMA also asks firms to provide, using data from the fourth quarter of last year, “the number of orders entered and the number of trades executed on all European markets in each asset class”, as well as “the ratio of the value of orders entered using each strategy to the total number of orders entered.”
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