High-Frequency Traders May Win Reprieve From EU Flash-Crash Rule

As reported by Jim Brunsden from Bloomberg, high-frequency traders may win a partial reprieve from proposed European Union rules designed to prevent a repeat of the so-called flash crash after banks and exchanges including Deutsche Bank AG and NYSE Euronext warned they could damage markets and lead to an exodus of traders.

The European Parliament may scrap plans to force firms that use algorithmic-trading programs to continue trading throughout the day, said Markus Ferber, the lawmaker writing the assembly’s response to the proposals. The measure was meant to prevent them creating volatility by diving in and out of the markets.

“We are really rethinking on the whole approach the European Commission has proposed,” Ferber said in an interview. The all-day trading rule was intended to promote market liquidity by ensuring a steady supply of buyers and sellers. “No one can answer me” why such firms should be expected to provide liquidity throughout the trading day, Ferber said.

High-frequency traders came under increased regulatory scrutiny following the so-called flash crash in May 2010, during which the Dow Jones Industrial Average briefly lost almost 1,000 points. The liquidity rule is one of several curbs proposed by Financial Services Commissioner Michel Barnier last year as part of a wider overhaul of an EU markets law, known as Mifid.

Barnier’s proposals need to be approved by national governments and lawmakers in the European Parliament before they can be implemented.

Complex Computer Programs

High-frequency trading, often used by hedge funds, entails using powerful technology and complex computer programs to execute orders in milliseconds to profit from fleeting discrepancies in the prices of shares across different trading venues.

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