Bloomberg News

France Urges Tougher Rules on High-Frequency Trades, Dark Pools

December 16, 2011

Dec. 16 (Bloomberg) -- France’s financial market regulator urged the European Union to toughen its planned overhaul of rules, highlighting the need for more oversight of high- frequency trading and new trading platforms.

Proposals presented in October by the EU are “insufficient” in ways that “could have grave consequences,” Thierry Francq, secretary general of the Autorite des Marches Financiers, said at the regulator’s Paris headquarters today.

“It’s absolutely essential that we move towards a system of centralized surveillance of orders and transactions on the markets,” the AMF said in a statement of its priorities for the overhaul, seeking a “more ambitious” plan for markets oversight.

High-frequency traders came under increased regulatory scrutiny following the so-called flash crash in May of last year, during which the Dow Jones Industrial Average briefly lost almost 1,000 points. The EU proposed measures like requiring firms that offer high-frequency or algorithmic-trading services to prove they have sufficient risk controls and ensure clients with direct access to the markets are properly qualified.

The European Securities and Markets Authority needs to have greater control of the high-frequency trading fees structure so they’re not “discretionary,” Francq said.

‘No Legitimate Reason’

The EU’s plans to crack down on so-called dark pools need to cut the number of exemptions from transparency requirements for “organized trading facilities,” or OTFs, which encourage the opaque venues, he said. “There is no legitimate reason” for most exemptions, he said.

The EU is seeking to push some dark-pool trading through a new form of regulated platform known as an OTF. Dark pools, or private venues that don’t display prices in advance, have been probed by regulators in both the EU and U.S. because of concerns that their lack of transparency increases price volatility.

There’s a “risk” that transactions taking place outside regulated markets will rise if “the rules there are less restrictive.” A threshold therefore needs to be imposed beyond which an organized trading facility must become a properly regulated trading venue, the AMF said.

Regulators need to have more cross-border access to information to police against market abuses, Francq said.

“The lack of provisions for regulators to have access to trading books is an important failure” in empowering regulators to police against market manipulation, he said. France only has access to those books for platforms within its territory, clogging the AMF’s efforts to halt market manipulators.

--With assistance by Jim Brunsden in Brussels. Editors: Peter Chapman, Christopher Scinta

To contact the reporter on this story: Heather Smith in Paris at hsmith26@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.


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