Europe’s financial chief promised the toughest-ever clampdown on high-frequency traders yesterday, as the world’s-biggest futures market faced legal action related to the practice.
European Union financial services chief Michel Barnier voiced concerns over the practice of high-frequency trading (HFT) a day ahead of a European Parliament vote which will impose curbs on it as part of a wider overhaul of markets.
The restrictions have been in the pipeline for several months but follow recent claims from financial writer Michael Lewis that the stock market was rigged in favour of high-speed traders in his latest book, Flash Boys.
The new rules will force the traders who buy and sell shares in a millionth of a second to exploit minute price differences to have their algorithms tested and be subject to regulation. They will also stop the minimum increments in prices at which shares trade from becoming too small to prevent a race to the bottom where trading platforms offer the smallest tick sizes to attract high-speed traders. Marketmakers who quote buy and sell prices for shares will also be obliged to remain in the market for a minimum period to ensure liquidity and prevent volatility, although some City analysts said they didn’t go far enough.
“With these rules the EU is putting in place one of the strictest set of regulations for high-frequency trading in the world. Although HFT trading might bring some benefits, we need to make sure that it doesn’t cause instability,” Mr Barnier said.
The vote comes as futures market CME, owner of the Chicago Board of Trade, faced a lawsuit from three traders who claimed the body was selling information to high-speed traders earlier than other market participants.
They allege CME committed “a fraud on the market” by offering high-speed traders early access to buy and sell orders. CME denies any wrongdoing.
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