UK’s largest pension fund weighs in on high frequency trading

The £35bn (€40.4bn) British Telecom Pension Scheme, the largest in the UK, is engaging with European regulators over high frequency trading.

It is calling for regulation favouring transparency and efficiency that’s not “skewed to the benefit of a limited group of market participants”.

It notes that most market participants are not owners but agents who benefit from market inefficiencies – the advantages of which they “try to hold exclusively for themselves”.

And it suggests that extra market liquidity merely promotes extra trading, which drives trend-following behaviour, “leading to a greater propensity to bubbles and busts”. It also reckons the definition of market abuse should be widened.

The 340,000 beneficiary-scheme was responding to a consultation paper from the European Securities Market Authority on highly automated trading.

“As ultimate asset owners, pension schemes have a strong interest in transparent and efficient markets,” the fund states.Interestingly, given the current concerns about the wider role of investment banks and trading activity, the BTPS was the only institutional asset owner to respond to the consultation, although the UK’s Investment Management Association and the retail-focused Danish Shareholders Association (DAF) also replied. There were 40 replies in total, mostly from exchange and banking groups.

“asset owners have an interest in transparent and efficient markets”

The BT fund says the proposed guidelines are “timely and valuable” and that there’s no need to wait for the Markets in Financial Instruments Directive (MiFID) directive to be finalised before promoting them.
ESMA launched the consultation in July and expects to publish its final guidelines at the end of 2011. Last month ESMA also launched a consultation into “empty voting” which closes on November 25.