EU lawmakers back curbs on high frequency share trade

Wed Sep 26, 2012 1:09pm EDT
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By Huw Jones

LONDON (Reuters) - Curbs on firms that trade shares faster than the blink of an eye moved a step nearer in the EU on Wednesday when a committee of the European Parliament voted unanimously to introduce sweeping reforms of securities markets.

High-frequency trading (HFT) has been singled out by regulators and policymakers on both sides of the Atlantic for favoring speculators and adding to share price volatility.

Such trading by Optiver, IMC Trading and other firms involves posting orders for microseconds at a time to exploit tiny differences in share prices.

The firms involved say they are courted by exchanges to provide liquidity, with HFT accounting for 40 percent or more of volumes on Europe's main stock markets.

The parliament's economic affairs committee voted 45 to zero to update a European Union law known as Mifid, which was instrumental in ending national stock exchange monopolies.

Share orders would have to be posted for at least half a second, far longer than HFT firms currently stay in the market.

"As a result of that the liquidity will drop, the spreads will rise, with corresponding additional costs for investors and the real economy," Deutsche Boerse's (DBKGn.DE: Quote) market policy head Stefan Mai told Reuters.

The HFT industry's trade body FIA EPTA said emotion, anecdotal evidence and populist rhetoric lay behind some of the rules rather than firm evidence. "Some of the proposed measures will erode the benefits that technological progress has delivered to investors," it said.   Continued...