1. Background

On July 20, 2011, the European Securities and Markets Authority (ESMA) issued a consultation paper on systems and controls relating to high frequency trading (HFT) and other forms of automated trading. ESMA is a newly established European authority with the remit to work on and establish legislation and regulation in the EU to standardize markets and monitor/resolve systemic risks for investors and market participants. More information can be found here (Please see article below for links.)

“Consultation on the Guidelines on systems and controls in a highly automated trading environment for trading platforms, investment firms and competent authorities” (the Consultation) sets out ESMA’s proposals for detailed guidelines for trading platforms, investment firms and regulators to address HFT and other challenges of a highly automated trading environment. ESMA states that the guidelines are intended to clarify the obligations of trading platforms and investment firms under the existing EU legislative framework (i.e., where no legislative changes are required). It believes that the proposed guidelines “contribute to the efficiency, orderly functioning and resilience of trading in a highly automated environment.” The Consultation follows on from certain of the issues addressed in the April 2010 calling for evidence by CESR (ESMA’s predecessor) on micro-structural issues of the European equity markets. This sought information on HFT, sponsored access (SA), co-location services, fee structures, tick size regimes and indications of interest.