25 March 2017
visit nextgenbanking.co.uk

ECB calls for gradual approach to HFT regulation

25 October 2016  |  4873 views  |  0 European Central Bank

The European Central Bank (ECB) is calling for a restrained approach to high-frequency trading regulation, arguing that more emphasis should be placed on high-frequency quoting.

HFT has long caused consternation among lawmakers thanks to several high-profile incidents, most infamously the May 2010 flash crash which saw the Dow Jones Industrial Average plummet.

But the ECB says that its research suggests that the practice actually dampens volatility on the market during normal times, although it can cause major problems during times of crisis.

The central bank is in no rush to pursue tough new rules, saying that more in-depth analysis is needed to mitigate risks while "preserving the benefits associated with technological progress".

Regulations should be rolled out gradually and there should be "more emphasis on high-frequency quoting relative to high-frequency trading".

This means a focus on kill switches that can be used when there are things such as erroneous trades or excessive volumes. Meanwhile, message throttling, limiting the number of quotes that can be processed, should also be on the agenda.

However, tougher measures such as minimum exposure times or order-to-trade ratios "seem, in light of our study, not yet necessary and should be used with care" because they could hit market liquidity, efficiency and resilience.

Yesterday Germany's Bundesbank took a less favourable view of HFT, issuing its own report on the practice which emphasised the risk of more flash crashes and backing the introduction of minimum resting times.

Comments: (0)

Comment on this story (membership required)

Finextra news in your inbox

For Finextra's free daily newsletter, breaking news flashes and weekly jobs board: sign up now

Related company news

 

Related blogs

Create a blog about this story (membership required)
Visit capgemini.comvisit abe-eba.eu

Top topics

Most viewed Most shared
French retailer Carrefour launches online bank accountFrench retailer Carrefour launches online...
57146 views comments | 15 tweets | 35 linkedin
European Commission opens public consultation on fintechEuropean Commission opens public consultat...
8674 views comments | 42 tweets | 25 linkedin
Can banks really win in the payments business of the future? – new Finextra reportCan banks really win in the payments busin...
8552 views comments | 23 tweets | 37 linkedin
Westpac wants to take over your messaging keyboardWestpac wants to take over your messaging...
7094 views comments | 4 tweets | 10 linkedin
SecureKey taps IBM to put identity on the blockchainSecureKey taps IBM to put identity on the...
6993 views comments | 22 tweets | 15 linkedin

Featured job

Six Figure Base + Commission + Stock Options
London

Find your next job