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Berlin to curb ultra-fast trade

May 29, 2012

The government in Berlin seeks to tighten control of so-called algorithmic trading earlier than planned by the European Commission, media reports have said. The aim is to prevent 'flash crashes' of stock markets.

electronic stock board at the Tokyo Stock Exchange
Image: AP

Germany is planning to impose curbs on ultra-fast computerized trading unilaterally, the Financial Times Germany newspaper wrote Tuesday, aiming for a respective draft bill to be ready by autumn this year.

"We want to introduce national legislation because we don't want to wait any longer," the newspaper quoted Volker Wissing as saying - a finance expert of the Free Democratic Party (FDP), which are junior coalition partner in the CDU-led government of Chancellor Angela Merkel.

Wissing said that German financial market supervisors would be enabled to "slowdown computerized high-frequency trading to zero" in the event of a risk emerging to regular stock market trading.

High frequency trading (HFT) relies on rapid-fire trades, based on computer algorithms and carried out within milliseconds, to earn profits on fleeting price imbalances.

Under the German plan, supervisors should also be given access to HFT firms' algorithm-based trading strategies to facilitate the spotting of market manipulation.

German dismay

In Germany, HFT makes up a volume of 40 percent of all stock market trades. The trading strategy reportedly played a role in the 2010 "flash crash" of Wall Street, when stocks traded at the New York Stock Exchange fell and rebounded sharply within minutes on May 6.

The European Commission, the EU's executive, has proposed a draft law, known as MiFID II, which is now before parliament and EU states for approval.

However, some EU lawmakers have already raised objections to tougher controls, and the British government has said it will challenge some of the proposals.

In 2010, the German government unilaterally introduced a ban on so-called Credit Default Swaps (CDS) on government debt, arguing the financial product was partly responsible for worsening the eurozone debt crisis.

Tighter control of high-frequency trading, Wissing said, was important to protect German stocks and financial markets from "major upheavals" set off elsewhere.

uhe/nk (AFP, dpa)