Brake sought on high-speed traders

James Moore@JimMooreJourno
Monday 14 May 2012 01:24

Banks and brokers are ripping off the taxpayers who bailed many of them out, according to an influential consumer lobby group.

Finance Watch has raised the heat in an increasingly impassioned debate by arguing that ordinary people saving through pension funds or equity-based investments are losing out through the activities of high-frequency traders (HFTs). They use computers to execute huge numbers of trades in short periods of time, and exchanges have spent millions of pounds to upgrade their infrastructure to accommodate them. This is likely to be made clear when the London Stock Exchange reports results at the end of the week.

Benoit Lallemand, senior research analyst at Finance Watch, said: "Many high-frequency firms make huge profits. But if someone is making profits like this, there has to be a loser."

Mr Lallemand said that high-frequency traders are effectively making profits on the back of the man in the street. He added that ordinary investors were losing out twice.

First, they did so because financial markets were focusing on HFTs and their needs at the expense of longer-term investors, who trade less. Second, they were losing out because "indirectly high-frequency traders make profits on slower traditional traders, on pensions and mutual funds".

Mr Lallemand argued that HFTs simply bring volume to markets but provide few other benefits. Finance Watch is lobbying the European Parliament, which has been discussing ways to clamp down on the practice. European law makers are discussing ideas such as imposing a minimum "resting time" during which a trader would have to hold securities.

Finance Watch has sought to reheat the issue after the European Principal Traders Association (Epta) argued that Parliament's move to curb the issue would set markets back seven years. It said clamping down on the practice would make markets less efficient and more volatile.

The Futures & Options Association has also said a minimum resting time would be counterproductive. Mr Lallemand, however, said that the cost of block trades favoured by big investors such as pension funds had risen by 14 per cent since 2009.

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