Europe and US warn of possible HFT clampdown

Lawmakers and regulators in both Europe and the US are proposing a potential clampdown on high frequency trading.

Lawmakers and regulators in both Europe and the US are proposing a potential clampdown on high frequency trading.

A third of share trading in the UK is led by algorithms, and three-quarters in the US. High-frequency trading (HFT) has become a crucial issue with lawmakers ever since the flash crash in May 2010, with many believing that a reliance on computerised algorithms make markets more volatile and causes long-term investors to lose out to faster traders.
Last week, the EU's executive European Commission urged tougher rules on computerised trading, including better monitoring on access to commodities to stop "speculative" traders from building up large positions that affect food and energy prices.

"This is really a hot potato because there are places in the world where you can play on the real economy," said Markus Ferber, a German centre-right member of the European Parliament, to a webcast meeting of the assembly's economic affairs committee in Strasbourg, France.

Meanwhile, the Commodity Futures Trading Commission (CFTC) in the US has also voted to establish a new subcommittee of the Technology Advisory Committee chaired by Commissioner Scott D. O'Malia, whose main focus will be to assess the presence and impact of HFT in CFTC-regulated markets.

"I think the Technology Advisory Committee through advice and guidance this new Subcommittee on Automated and High Frequency Trading will provide a much needed holistic approach to identifying the criteria the Commission needs to incorporate into any further decision making regarding automated trading and HFT," said Commissioner O'Malia.

With regards to the EU proposal, despite wide support, many do not believe that it goes far enough in defining what is allowed for specific commodities - unlike the US, which has defined fixed position limits for several commodities.

"If someone is getting involved in commodities trading without being at all interested in the commodities themselves then how can we keep them under control?" Ferber said.

In other trading news, a new high-speed FIX Protocol trading standard is expected to be released next month . It proposes to offer an independent means of comparing latency, when measurement standards have long been argued over.