Magazine article Modern Trader

Europe Shores Up Rulebook

Magazine article Modern Trader

Europe Shores Up Rulebook

Article excerpt

A couple of years ago the more principle based regulatory structure of Europe was all the rage, but the credit crisis of 2008 has changed the playing field. Now, fast on the heels of U.S. financial reform (see "Dodd-Frank: Moving from theory to practice," page 56), the European Union (EU) completed a review of the Markets in Financial Instruments Directive (MiFID). While the review left MiFID with considerably more oversight power, it has left some analysts wondering if the cost may be too great.

In the most recent move, the very shape of European regulation has begun to change. "The European approach had always been principles based. They would say 'you should do this or that,' and it was up to you to implement a way of meeting the expectation of the principles," says Jay Gould, head of the investment funds practice at Pillsbury. "Now, we see a move toward much more detailed guidance."

One area that has received considerable attention is high-frequency trading. Under the new rule proposals, high-frequency traders will have to fully explain their trading algorithms' design and functionality to regulators before they can be used in markets.

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Miranda Mizen, head of European research at TABB group, explains the potential challenge. "If you have to explain your algorithm to the regulators, then that assumes the people you are talking to can react very quickly and understand what you are trying to do. There is a lot of burden of responsibility being put into one place," she says. …

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