European Parliament lawmakers have reached a draft deal with national governments on high-frequency trading curbs as part of a push to toughen the bloc's financial market rulebook, said the chief legislator working on the plans.
"The negotiation team achieved a significant breakthrough on this issue," Markus Ferber, the lawmaker leading the measures, said in an e-mail. "The area of high-frequency trading is lacking suitable regulation. This is why it was high time to find a decent solution to this pressing problem."
The provisional deal, reached by legislators and officials from Lithuania, which holds the EU's rotating presidency, includes a so-called tick size regime limiting the minimum size of price movements on financial markets, Ferber said. "This will slow down high-frequency trading significantly," he said.
High-frequency trading in stocks came under increased regulatory scrutiny after the so-called flash crash in May 2010, during which the Dow Jones Industrial Average briefly lost almost 1,000 points.
The practice involves using powerful technology and complex computer programs to execute orders in milliseconds and profit from fleeting discrepancies in security prices across different trading venues. Companies active in high-frequency trading have warned that interfering with their strategies would raise investor costs and harm financial stability.
David Fuller's view It will take more that this to curb the dangerous development of high-frequency trading which Eoin and I have campaigned against for several years. Unfortunately, HFT is quietly encouraged by too many brokers and exchanges because they earn fees from it.
This is short-sighted because high-frequency trading is illegal front-running at best. At worst, without firm regulation and a level playing field in the interests of all investors and individual traders, high-frequency trading will result in an eventual market doomsday caused by these machines and their programmers.