The House of Lords Economic Affairs Committee (the Committee) has published a letter from Martin Wheatley, FCA Chief Executive. Mr Wheatley’s letter is in response to an earlier letter from the Committee which covered high frequency trading (HFT) and in particular whether predatory trading strategies are an issue in the UK equity market.

Points of interest in Mr Wheatley’s response include:

  • there are less opportunities for predatory practices in UK than in comparison with the US;
  • the introduction of the Markets in Financial Instruments Directive required firms to assess best execution, which governs order routing. A broker has discretion to adjust order routing to avoid predatory strategies if these are considered to impact negatively on best execution. This reduces the predictability of order routing in the UK market;
  • the speed at which market participants receive information can be dependent on price and availability, both factors of which can act as a barrier to entry. The FCA is aware of this and will be conducting studies that will examine information sources and the fairness of information provision. The studies will have a particular focus on HFT;
  • the FCA is aware of the need to ensure surveillance tools keep pace with market developments. This is one reason for the new requirements being introduced as part of the review of MiFID for trading venues and firms to keep records of orders as well as trades; and
  • the FCA agrees that increased transparency and disclosure can play a role, along with other measures, in mitigating the risks of HFT activity.

View Letter from Martin Wheatley to Lord Hollick, 18 August 2014