Britain and France is planning a crackdown on ultra-fast stock trading that they belive caused the so-called “flash crash” in the US stock market on May 6th this year, alarming both regulators and global investors, Reuters.com report. Jepp, here we go again. Why don’t we just forbid the whole internet and get it over with…and don’t forget the cell phones!
“My natural tendency would be at least to regulate, to oversee it very strictly and after a cost-benefit analysis of these methods, maybe to forbid it.”
French Economy Minister Christine Lagarde says the form of computerized trading, known as high-frequency trading (HFT), may need banning in some cases. She’s being backed up by the UK Financial Authorities.
“My natural tendency would be at least to regulate, to oversee it very strictly and after a cost-benefit analysis of these methods, maybe to forbid it,” Lagarde said at a parliamentary commission hearing on financial speculation. Reuters.
“Or at least give market authorities the power to forbid it in circumstances that are considered exceptional,” she added.
Britain, Europe’s biggest stock market, where HFT accounts for about a third of trading on the London Stock Exchange, also signals tougher rules were needed – but emphasise that the rules must be proportionate and targeted.
“HFT was simply the evolution of trading to a much faster pace due to advances in technology,” Alexander Justham, director of markets at the UK’s Financial Services Authority, told a TradeTech 2010 markets industry conference.
Adding: “We are not here to turn the clock back.”
Computerized trading and methods such as algorithmic trading transacts a huge number of shares in microsecond.
“If you drive so fast, the technology should be that you can break as fast as well,” Justham says.
Justham also says, according to Reuters, that HFT has narrowed bid/offer spreads, but the jury was out on whether it has led to more efficient trading or whether it has created unfair advantages in trading.
Arguing that there’s a key differences between the US and European stock markets, such as controls on who can trade, and the availability of so-called “circuit breakers” to stop the most brutal moves.
“We are absolutely not complacent about the general risk of what all this means. Has the playing field been tilted?” Justham asks.
Well, in this bloggers view it’s the authorities that’s been tilted.
And just to be completely precise: I do definitely see the problems related to high frequency trading. Especially the fact that some market participants are able to get sensitive information before anyone else in the market does, and that’s just plain unfair. However, it’s the exchanges themself who offer this service to selected customers.
So, in my view the regulators should start by regulating themself before they impose yet another set of rules on the investors.
“I would only see advantages if it was scrutinized as much as possible,” Noyer said.
Related by The Swapper:
- Hey, You HFT Bashers! Are You Ready For This?
- “Artificial Intelligence” To Be Implemented In HFT
- The Ultimate Trading Weapon
- Will Supervising Hedge Funds Put An End To Systemic Risk?
- Derivative Trading Just Keeps Getting Bigger
- HFT Turns To Low Liquidity Stocks
- The Ultimate Trading Weapon
- WRAPUP 2-Computerised trades in EU face tougher rules (reuters.com)
- LSE hires manager to lure high-frequency flow (reuters.com)
- New Revealing paper on High Frequency Trading (papers.ssrn.com)
- Former-Lehman Team Returns to High-Frequency Trading at Nomura (blogs.wsj.com)
- UPDATE 1-UK to probe high-frequency trading – FT (reuters.com)
- UPDATE 1-CME Group CEO defends high-frequency trading (reuters.com)