ESMA high frequency trading report – HFT responsible for 24-43% of equity trades

The European Securities and Markets Authority (ESMA) has published today an economic report looking into the extent of high-frequency trading (HFT) activity in the European Union’s equity markets. This is the first study into HFT across major venues in the EU. Based on a sample of 100 stocks from nine EU countries in May 2013, the report finds that HFT activity ranges from 24% to 43% of equity value traded, using alternative methodologies.

These high percentages are certainly a matter of interest, especially when bearing in mind the European Commission’s continent-wide disdain for HFT which began two years ago with Germany’s national financial markets regulatory authority BaFIN implementing rulings to stem the practice, followed by the pan-European government level law makers following suit, led by Commissioner Michel Barnier, a senior regulatory figure who has on several occasions stated his intention to put paid to the use of algorithms and HFT methodologies across Europe.

Indeed, the figures published by this study show that HFT is clearly a major part of the electronic trading ecosystem in Europe’s equity markets, just as it is a prominent feature among the proprietary trading desks of Chicago and New York; the United States being a jurisdiction which has given a clear green light to these practices in the FX and non-bank markets by allowing proprietary trading within the non-bank sector to be excluded from the Volcker rule, which prohibits the practice of firms trading on their own account.

ESMA’s approach provides a lower bound of HFT activity (based on the primary business of firms – 24% of equity value traded) and an upper bound of HFT activity (based on the lifetime of orders – 43% of equity value traded). ESMA’s report also shows that the level of HFT activity varies widely between the estimation approach, trading venues and stocks.

For the full report, click here.

Read Also: