23 November 2014

MEPs vote to curb high-frequency trading

16 April 2014  |  4757 views  |  0 EU flag

Members of the European Parliament have voted through new rules designed to clamp down on high-frequency trading 'Flash Boys'.

High-frequency trading has been in the news in recent weeks thanks to the publication of Michael Lewis's book on the subject, 'Flash Boys'.

But the practice has long caused consternation among lawmakers on both sides of the Atlantic thanks to several high-profile incidents, most infamously the May 2010 flash crash which saw the Dow Jones Industrial Average plummet.

After months of wrangling with member states as part of negotiations for MiFID II, MEPs have now adopted rules which will see the introduction of circuit breakers to stop trading if price volatility gets too high.

Meanwhile, the algorithms used by HFT firms will have to be tested on venues and authorised by regulators and records of all placed orders and cancellations will have to be stored and made available to authorities upon request.

MEPs had initially wanted to go further but backed down from a demand for a minimum resting period requiring orders to stay on an order book for 500 milliseconds.

Parliament has also agreed tougher rules on trading of over-the-counter derivatives and of commodities while moves designed to protect investors through the withdrawal of 'toxic' products have been nodded through.

The rules now need to be formally approved by the European Council and are expected to finally come into force at the end of 2016.

In addition, MEPs have baked new central securities depositories regulation designed to create shorter settlement periods and bring in strict prudential and conduct of business rules for CSDs.

Internal market and services commissioner Michel Barnier says: "The numbers speak for themselves: in the European Union, transactions worth over one quadrillion euro were settled by CSDs in the last two years. The new Regulation will ensure that settlement is carried out in a safer and more efficient manner in Europe."

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