Two controversial practises associated with high-frequency trading and the comparative responses from the European Union and the United States

Abstract

This dissertation compares the regulatory approaches taken by the EU and US to prevent HFT-associated market misconduct with the goal of identifying any significant differences that could be used in their mutual improvement. Spoofing and electronic front-running are used as benchmark manipulative practises, although electronic front-running is found to be controversial rather than abusive. The study argues on the back of its literature review section which is used as a fundament for the comparative analysis. As the research compares two rather large and composite systems, certain provisions such as the Reg SCI, MiFID II and MAR were subjected to scrutiny. The comparative analysis suggests that the effect-based EU approach is more resilient than the intent-based US approach when the goal is increased market efficiency, as intent is easier to cover up or challenge. As a result of the study, two suggestions for mutual improvement of the two regimes are proposed. Speed bumps or batch auctions are recommended as possible implementations to counter the negative market implications associated with electronic front-running. Speed bumps are found to be more implementable and therefore proposed as a short-term measure. Cancellation fees or cancellation caps are suggested as remedies against spoofing, although further investigation into their net market effects, such as effects on market-makers, are first required. The fact that the EU regime leaves significant room for individual interpretation between Member States is found to be an important weakness.

Date of Award	17 Sept 2021
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Maria Clara Natividade Martins Pereira (Supervisor)