Home > Uncategorized > Countries Regulate High Frequency Trading – Business Insider

Countries Regulate High Frequency Trading – Business Insider

September 28, 2012 Leave a comment Go to comments

Countries around the world are slowly but surely rethinking the rules of high frequency trading. Where once they rushed to catch up to the United States, now they’re taking steps back, the NYT reports.

To review: High frequency trading is based on computer algorithms, designed by PhDs and used by the most sophisticated investors in the world. Trades fire off at speeds in the millionth of a second.

Critics of the practice say that moving at such speeds can cause volatility in the markets, like flash crashes (a  2010 flash crash brought the stock market down 9%). They also say that when a program is faulty, it’s harder to stop high speed trades from doing serious damage — like when a mistake in a Knight Capital trading program lost the company $440 million this summer.

Events like those are giving countries around the world pause. They don’t necessarily want to get rid of HFT, they just want to put regulations in place that will control it (if that’s even possible). Here’s what they’re doing:

In Germany/EU — legislation that would force HFT firms to register with the government is on the move.

In Australia — Regulators want to submit HFT firms to more supervision and force them to do stress tests.

In Canada — Regulators are increasing fees to firms that flood the market with orders and limiting the number of trades that can go into dark pools, where big players can trade without revealing their positions. Plus, traders will only allowed to go in to dark pools if the prices are better than those are the open market.

via Countries Regulate High Frequency Trading – Business Insider.

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