High-Frequency Trades, CFTC Budget, Trading Tax: Compliance

As reported by Carla Main 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.

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 would require algorithmic trading strategies to be in continuous operation during trading hours and to offer quotes at competitive prices regardless of prevailing market conditions, according to a copy of the plans published on the commission’s website.

The liquidity rule may increase costs for high-frequency trading companies and place them at a disadvantage to other traders who are allowed to withdraw from the market, NYSE Euronext warned when the plans were announced last year. This may encourage firms to shift their activities out of the 27- nation EU, it said.

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