France recently proposed rules to regulate high frequency trading. Under the proposed rules, “high frequency trading” is defined as the act of habitually transmitting orders using an automated processing system for these orders which is characterized by the transmission, modification or cancellation of successive orders on a specific security separated by a time period of less than half a second.
Following the financial crisis and due to delays in implementing MiFID II, France has acted in advance of MiFID II to regulate HFT. As of January 1, 2015, the new French rules will require any firm using an automated system to document the nature of that system and report it to the AMF (the French equivalent of the SEC) within a month of its operation and to maintain records of all algorithms and transactions for 5 years. Mr. Guillaume Elliet, AMF’s Head of Regulatory Policy, recently stressed that the new rules will only apply to systems trading transferrable securities issued by French-based issuers. These provisions will, therefore, not apply to non-resident persons, unless the orders are directly sent to a regulated market or multilateral trading facility in France such as Euronext’s Paris market. Mr. Elliet also re-iterated that nothing will contradict the future MiFID II rules (i.e. licensing requirement on HFT, order flagging rules, order-to-trade ratios, obligations on market-makers) and HFT firms will not be asked to provide notifications to the AMF that would not otherwise be required under MiFID II. The new French rules become effective on January 1, 2015.