HFT scrutiny a concern for ETF providers – Deborah Fuhr

The managing partner at research consultancy ETFGI warned that increased regulatory scrutiny of high-frequency trading was “a concern for ETF providers”.

Her comments followed a speech at the Global Exchange and Brokerage Conference in New York, by Martin Wheatley, FCA chief executive, which revealed that the UK regulator is planning to assess whether innovations in technology used to facilitate high frequency trading are “threatening a fair and efficient market”.

The area is of particular concern given disparities between geographical markets, dark pool trading and complex and opaque algorithms which, some argue, cause market distortions to the profit of firms.

Article continues after advert

Mr Wheatley said: “Given the high stakes involved here, I’m not surprised to see world regulators taking the risks posed by high-frequency trading very seriously. In the UK, this is certainly the case.”

Europe has already set out a comprehensive set of guidelines through the European Securities and Markets Authority. These include detailed expectations around systems and controls for trading venues, as well firms using these techniques.

Mr Wheatley added that the “bulk of policy work” for the FCA will now be absorbed in gearing the UK up for MiFID II implementation in two years’ time.

Ms Fuhr added: “The more important issue for ETFs is MiFID II and the expected requirement to report all ETFs and a consolidated tape.”

Adviser view

Nick McBreen, IFA in Truro-based Worldwide Financial Planning, said: “ETFs are widely misunderstood and people talk about them and index tracker funds in the same breath. But ETFs invest in direct shares. High-frequency trading will affect how often funds move in and out of underlying investments which means there is a cost involved. This could affect the delivery performance of ETFs and the quality of funds will become more important.”