In addition to sovereign debt restructuring, European financial market executives have a new mandate - high frequency trading governance. On February 24, 2012, the European Securities and Markets Association ("ESMA") published the final version of "Guidelines on systems and controls in an automated trading environment for trading platforms, investment firms and competent authorities" in all official languages of the European Union ("EU"). As a result, regulatory supervisors must "declare whether they intend to comply with the guidelines or otherwise explain the reasons for non-compliance."

What caught this blogger's attention is the document's emphasis on governance as being "central to compliance with regulatory obligations" and having to address technical, business and operational risks, among other things. The document continues that policies and procedures must be in place to monitor a firm's trading systems and algorithms for adherence with the firm's internal control requirements. Additionally, it is critical for a firm to be able to detect when failures occur.

Whether these directives have an impact on high frequency trading remains to be seen. Bruce Love does a nice job of explaining the likely impact of ESMA's guidance. See "ESMA's HFT rules widen net, cash shadow over dark pools" (The Trade, January 24, 2012).