Carlos Jorge Lenczewski Martins
pages: 34-46; JEL classification: D47, D53, G18; Keywords: HFT; MiFID II; batch auctions; granularity; clock synchronisation; Abstract: In recent years, there have been many discussions and analyses of how high-frequency trading may affect the financial market – but still without any clear conclusions. Leaving these opinions behind, many adjustments have already been made in the US and Europe - both to regulations and market rules, impacting not only High-Frequency Trading but general electronic trading as well. These rules and regulations are the result of technological developments in electronic trading and more specifically, High-Frequency Trading and the practice of Payments for Order Flow. The question remains as to how deep regulations should go, especially in the case of HFT which can be severely affected by harsh regulatory requirements or procedures. Because two of the most important issues in HFT are time and information, some of the rules and regulations affect aspects such as not only what type of information and how it should be gathered, but also clock synchronisation and time-stamp granularity. Another issue that may be considered controversial in the field of HFT (although it is not a practice limited to HFT) is Payment For Order Flows. Under this mechanism, wholesale market makers pay brokers for their client’s order flow – a practice that performed in great amounts and at high speeds may give a considerable level of “inside” information. Regulations, especially from ESMA (MiFID II). try in great part to thus mitigate the practice of Payments For Order Flows.