Britain studying high-frequency trading concerns

February 3, 2010
Myners: concern over high frequency trading

Myners: concern over high frequency trading

    By Huw Jones
   LONDON, Feb 3 (Reuters) – Britain is studying the growth of high-frequency share trading to see if regulatory action is needed, a government minister said on Wednesday.
   Financial Services Minister Paul Myners also said that the best way to curb excessive risks from proprietary trading at banks was to increase capital charges rather than force through the structural changes outlined by U.S. President Barack Obama.
   Myners called on bankers and other market participants to give their views to his fact-finding excercise which follows concerns from investment market users.
   “High frequency trading is an increasingly prominent feature of markets and so I find it an area worthy of attention,” Myners told reporters.
   It refers to lightning fast, computer-driven trading which accounts for 60 percent of total equity volumes in the United States though Europe is further behind. [ID:nN24314255]
   Critics say it causes wild price fluctuations but supporters point to greater competition and liquidity. The U.S. Securities and Exchange Commission is probing high frequency trading, putting pressure on its European counterparts to follow suit.
   “People are coming to me, both market users and intermediaries saying that they have concerns about high frequency trading and so I should listen to those concerns,” Myners said.
   “High frequency trading is a very new development. Does that have consequences that regulators need to be focusing on?” Myners said.
   The European Commission said on Monday it will also be included in a review of European Union share trading rules known as MiFID. [ID:nLDE6100T6]
   
   OBAMA PLAN NO SOLUTION
   Myners reiterated Britain’s view that copying a plan by Obama to restructure and curb the size of big banks was not the best way to make the financial system safer.
   Known as the Volcker rule after its architect, Paul Volcker, Obama’s plan would mean big banks with insured deposits divesting themselves of hedge funds, private equity and proprietary trading, or trading for their own account.
   “I am not persuaded that the focus on hedge funds, private equity addresses the core issues that were at the heart of the global banking crisis,” Myners said.
   “Proprietary trading is an issue but is best addressed by capital which Volcker actually concludes. My view is size is a less significant issue to focus on than interconnectedness,” Myners said.
   A global agreement forged by the Basel Committee will introduce much higher capital charges on risky bank trading activities from January 2011.
   Obama’s plans are part of a debate on how to tackle banks whose failure would destabilise markets but it is unclear if it will pass through Congress. [ID:nLDE61202H]
   Germany, France and Britain have signalled they won’t follow suit, raising concerns about banks coming to Europe to conduct their risky activities. EU finance ministers are due to discuss the plans later this month. [ID:nLDE6111TJ]
   Britain is exploring alternatives and its Financial Services Authority has begun piloting “living wills” to wind down a bank quickly in a crisis, a move other countries are likely to copy.
   “We in the UK have probably been in the fore in promoting living wills, but there is general recognition that the concepts behind living wills have real utililty,” Myners said.
   Myners said the concept of living wills also raised problems as “it is directing us towards, for instance, increased use of subsidiarisation rather than branches but then that has to be squared with EU rules”.
   “There are no easy or quick fix solutions although I am very pleased with the progress the FSA is making in its work with trial banks on the development of living wills,” Myners said.
   For indepth look at high frequency trading click on http:/hft.thomsonreuters.com (Reporting by Huw Jones, editing by Stephen Nisbet) ((Reuters messaging: huw.jones.reuters.com@reuters.net; + 44 207 542 3326; huw.jones@thomsonreuters.com))
 Keywords: REGULATION MYNERS/
  
Wednesday, 03 February 2010 11:12:59RTRS [nLDE6120UU] {C}ENDS

No comments so far

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/