LONDON: Curbs on firms that trade shares faster than the blink of an eye moved a step nearer in the EU yesterday when a committee of the European Parliament voted unanimously to introduce sweeping reforms of securities markets.
High-frequency trading (HFT) has been singled out by regulators and policymakers on both sides of the Atlantic for favouring speculators and adding to share price volatility. Such trading by Optiver, IMC Trading and other firms involves posting orders for microseconds at a time to exploit tiny differences in share prices.
The firms involved say they are courted by exchanges to provide liquidity, with HFT accounting for 40 percent or more of volumes on Europe’s main stock markets.
The parliament’s economic affairs committee voted 45 to zero to update a European Union law known as Mifid, which was instrumental in ending national stock exchange monopolies. Share orders would have to be posted for at least half a second, far longer than HFT firms currently stay in the market. Separately, Germany’s cabinet approved a draft law on tougher rules for HFT, although it stopped short of setting a minimum “resting” period for orders in the market.
Yesterday’s vote is the first milestone for the draft law and the parliament has equal say with EU member states on its approval, meaning changes are expected before a final text is agreed and it becomes law around 2015. The broad aim of the law is to catch up with big advances in fast trading technology and apply lessons from the financial crisis, such as the need for more transparency.
Lawmakers also voted to increase transparency in bond and commodity markets to levels seen in share trading so that investors and regulators have a better idea of what’s going on.
One way of doing this will be to force much of the $650 trillion in derivatives trading among banks onto electronic platforms. A new breed of organised trading facility (OTF) will be created for off-exchange traded instruments.
The lawmakers approved restricting trading on an OTF mainly to bonds and commodities so that shares traded between banks would end up on an existing exchange or similar venue.
Reuters
