EU moves on market reforms

Wed, Sep 26, 2012, 01:00

Curbs on firms that trade shares faster than the blink of an eye move a step nearer in the European Union today when the region's parliament votes to introduce sweeping reforms of securities markets.

High-frequency trading has been singled out by regulators and policymakers on both sides of the Atlantic for favouring speculators and adding to volatility.

High-frequency trading by Optiver, IMC Trading and other firms involves posting orders for milliseconds at a time to exploit tiny differences in share prices. The firms involved say they are courted by exchanges to provide liquidity to markets.

The European Parliament's economic affairs committee votes at 2.30pm (Irish time) to update an EU law known as Mifid, which was instrumental in ending national stock exchange monopolies.

A cross-party move to force traders to place orders in markets for at least half a second is expected to be voted through.

Today's vote is the first milestone for the draft law in on which EU member states also have a joint say, meaning further changes are likely before the draft becomes law around 2015.

The lawmakers also have preliminary cross-party backing to water down the draft law's articles intended to open up the processing of derivatives trades to stiffer competition.

Big bourses like Deutsche Boerse and NYSE Euronext will breathe a sigh of relief but Britain will seek to halt the move if it can find enough voting allies later in the approval process.

Another key element is curbing what some policymakers see as speculation pushing up oil and food prices by imposing limits on positions that traders can hold in energy and food commodity derivatives markets, a step the United States has already taken.

The draft law increases transparency in bond and commodity markets to levels seen in share trading so that investors and regulators have a better snapshot of what's going on.

One way of doing this will be to force much of the $650 trillion derivatives market currently traded among banks onto electronic platforms.

A new breed of organised trading facility (OTF) will be created for off-exchange traded instruments.

The lawmakers are expected to restrict trading on an OTF mainly to bonds and commodities so that shares traded between banks would end up on an existing exchange or similar venue.


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