Warsaw installs co-lo as Italy imposes HFT tax
Italy’s Senate in Rome has passed a new tax on HFT. Debate rages across Europe over whether HFT is good or bad for investors and markets
Poland’s Warsaw Stock Exchange has introduced co-location systems designed to appeal to high-frequency traders, as Italy clamps down on HFT with Europe’s first HFT-specific tax. The moves highlight ongoing divisions over the role of HFT in capital markets.
In April, the WSE switched to a new UTP trading platform built by NYSE Technologies, a subsidiary of NYSE Euronext. Now, the exchange has launched co-location, which is designed to help clients place their hardware and software as close to the WSE trading system as possible for the lowest possible latency. Exchanges around the world have increasingly provided co-lo facilities in recent years, in part to attract lucrative flows from HFTs.
The WSE says the new service will benefit members by reducing bandwidth costs and placing less reliance on network service providers. However, critics of HFT contend that such services as co-location, which are typically affordable only for wealthy hedge fund clients, large investment banks and other wealthy organisations, disadvantage the traditional long-term investor by providing an unfair advantage to the HFTs.
“The co-location service is currently offered by most of the important global stock exchanges,” said Adam Maciejewski, chief executive at the WSE. “We are always sensitive to our clients’ expectations, so we aim to continually improve our offer by adding new top-level services. As a result of the introduction of Universal Trading Platform at Warsaw Stock Exchange, we strive to systematically increase the competitiveness of our market and improve liquidity in Warsaw.”
Opposing the rise of HFT are legislators in countries such as Italy, which has just introduced a tax on order changes and cancellations at 0.02% if they are made within 500 milliseconds. Italy’s Borsa Italiana had previously introduced charging for firms that cancel more than 100 orders for every one they execute, in April 2012.
In Germany, firms practicing HFT have to register with the authorities, and provide details of their algorithms and how they operate on demand. At the European level, the EC’s upcoming MiFID II legislation contains similar proposals to ensure adequate testing, maintenance and regulatory oversight of algos, which were issued as non-binding automated trading guidelines as far back as February 2012.
In France, HFT firms are ostensibly hit by the country’s unilateral financial transaction tax, enacted in May. However, a separate amendment, proposed as an additional specific levy on HFTs, was abandoned. It has since been charged that the two largest practitioners of HFT in France, BNP Paribas and Societe Generale, are covered by market making exemptions and are therefore unaffected in any case.
