As a recent report in your paper observes, one of the most controversial parts of the Markets in Financial Instruments Directive (MiFID II) has been that concerning electronic market-makers (“MEPs and industry at odds over planned financial trading rules” 20-26 September). For whatever reason, traders – who I represent – tend to attract emotive rhetoric that bears little relation to evidence that we play a positive role in providing markets' liquidity and reducing costs for investors.
FIA European Principal Traders Association, which represents firms that trade their own capital on the financial markets, strongly supports balanced measures that ensure safe, resilient and transparent markets. However, we urge policymakers to weigh carefully the costs, which are more than monetary. Ironically, some of the proposals advocated in the Commission's original proposal, as well as the amendments sought in the European Parliament, would reduce – rather than increase – transparency, by pushing trading off-exchange.
A particular concern is the proposed obligation for electronic market-makers to quote continuously under any market condition, even if our risk systems tell us
to withdraw. This would be akin to forcing banks to lend money to anyone who walks into their branches regardless of credit history. It would also be in direct contradiction of other provisions in MiFID regarding risk controls.
Equally, the proposed limit on the ratio of unexecuted to executed orders (known as the order-to-trade ratio), the minimum order resting time and the proposed order-cancellation charges could severely hamper the work of electronic market-makers in particular on the derivatives markets. These proposals will quite simply cause bid-ask spreads to widen and liquidity to decrease. This would entail additional costs for investors.
These obligations on market-makers might benefit other participants in the financial industry, but less-transparent markets, higher risks for market-makers and higher costs for investors are not, surely, the objective of those pushing for these regulations.
Remco Lenterman Chairman, FIA European Principal Traders Association Brussels