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Germany bids to curb high-frequency trading
BERLIN — German Chancellor Angela Merkel’s cabinet on Wednesday agreed draft laws aimed at putting the brakes on high-speed trading that once caused a trillion-dollar loss on US markets in a matter of minutes.
Ministers passed a raft of measures to curb the practice of computerised high-frequency trading, which allows trades to be carried out in a matter of seconds and accounts for up to half the activity on Germany’s stock exchange.
Risks associated with such trades include “extreme and irrational market fluctuations, overburdened trading systems and also the possibility of malpractice,” the finance ministry said in a statement.
The measures agreed on Wednesday should provide “more transparency, safety and oversight” and “all-in-all make the financial system more resilient to crises,” the statement added.
According to the draft legislation, high-frequency traders will have to be registered and set up their trading systems in such a way that they cannot lead to glitches on the overall market.
In addition, the government plans to levy a fee on traders who engage in “excessive use of the trading system,” Berlin said.
Similar legislation is also being discussed in Brussels that could see curbs rolled out over the whole of the European Union.
And legislators on both sides of the Atlantic are looking into ways to prevent future disruption after a series of high-profile incidents linked to high-frequency trading.
The “flash crash” of May 6, 2010, where the Dow Jones index plunged 700 points in a matter of minutes, was blamed on one firm’s algorithm selling off 75,000 stocks in 20 minutes, in a computerised trade worth 4.1 billion dollars.
The legislation must now be passed in both German houses of parliament.
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