High Frequency Trading Review


    An Interview with Sam Tyfield

     Anyone trying to keep up with the regulatory landscape in Europe, from a financial trading perspective has their work cut out. It literally is changing on a weekly basis at the moment. There are various flavours of Financial Transaction Tax; the recently past German HFT Act; MiFID II and MiFIR; the new Market Abuse Regulations; and more.

    In this interview, HFT legal expert Sam Tyfield, Partner at Vedder Price, takes us through the latest iterations and helps us untangle some of the knots.

    HFT Review: Sam, welcome to HFT Review. Can you tell us a little bit about who you are and what you do?

    Sam Tyfield: Thank you Mike.  I’m a Partner at Vedder Price in London. Vedder Price is a general practice law firm with offices in Chicago, New York, Washington DC, San Francisco and London. I work mostly with high frequency trading firms, the majority of which are principal trading. I help them with business issues arising on a day to day basis, corporate projects (M&A etc) as well as the bigger compliance, legal and regulatory issues that are coming down the wire.

    Earlier in my career I was Chief Operating Officer and General Counsel of an HFT proprietary trading firm and have now come back to the law.

    HFTR: Which is a changing landscape at the moment…?

    ST: Oh yes, it’s definitely in flux. So whatever we say today will most likely have changed by this time tomorrow!

    HFTR: And you focus on the European markets? 

    ST: Yes, I deal with US, UK and European clients, but focus on their activities in the European markets, correct.

    HFTR: Can you talk us through some of the key regulatory initiatives in Europe and what their impact may be? Maybe we can start by looking at the financial transaction tax (FTT) proposals that have been approved by eleven EU member states?

    ST: Well it’s probably worth starting with the French and the Italian FTT, which are already in force. They pretty much have the same scope except that the French tax doesn’t cover derivatives and the Italian one will cover derivatives as of the beginning of July this year.  And both are relatively simple in their scope.  How easy or not it is to calculate what tax is due is a different question, but it’s relatively clear that if you are flat at the end of day in some form or another, provided you jump through the hoops, then the tax probably won’t be payable by you.

    One aspect of the Italian law is that it doesn’t have its own definition of market making; it relies on the EU regulations around short selling to define what market making activities would fall outside the scope of the tax. This has led to a number of interesting issues for participants because it’s not been entirely clear whether, if you are making markets on exchange but hedging that liability over-the-counter (OTC), the OTC trades would fall within the exemption for market making.

    In addition, various industry participants and groups have pointed out that there is significant ambiguity in the language of the decree leading to confusion as to how the tax is calculated.

    HFTR: To date, are there any kind of statistics or details on who is actually paying this tax and how much revenue it’s generating for the French and Italian Governments?

    ST: The French are being very careful about not telling anybody exactly what they’ve collected, so one could make the assumption that they haven’t collected very much.  It’s the same thing with the Italians, although the first payment collection date for the Italian tax hasn’t yet passed yet, being 16th July 2013. The feeling within the industry is that the tax is not so much of an issue for the HFT community because they’re generally flat at the end of the day.  It’s more about your broker relationship; if you have multiple brokers or if you’re clearing through a number of clearing houses, it becomes an information exchange problem.  But overall I think the effect on the HFT community has been relatively light.

    HFTR: If the tax hasn’t impacted HFTs much, who has it had an impact on?

    ST: Anecdotally, it seems to be the real buy side, the end clients, all those who are not able to apply for or benefit from an exemption, who have found it a real problem.  On message boards, around the time that the Italian law was about to come into force for example, there were buy sides saying, “That’s it I’m done, I’m closing down the office”.  There is some evidence that volumes have fallen off, particularly in Italy. And as you would expect, that fall-off has been much more heavily weighted towards the smaller, mid cap stocks. In that respect it has become a more difficult market for HFTs because there’s lower liquidity and lower volume.  There hasn’t been any significant change in volatility since the introduction of the Italian FTT; it just becomes that much more difficult to pursue a strategy when the market is not really doing as much.

    Looking ahead towards the potential implementation of the eleven member state-wide FTT, which is expected to be introduced in the middle of next year, the impacts are likely to be far more wide-reaching.

    HFTR: How so?

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