The European Parliament’s financial committee decided two weeks ago to rein in the velocity of high-frequency trading. The Economic and Monetary Affairs Committee’s unanimous vote paves the way for a half-second speed limit on those using computers to execute lightning-fast stock deals.
“All market players and trading venue operators would be required to lay down clear rules and procedures for fair and orderly trading, objective criteria for executing orders efficiently and transparent criteria for determining which financial instruments may be traded via their systems,” the committee stated.
The speed limit would be part of Europe’s new financial driver’s manual, the Market in Financial Instruments Directive. True, MiFID still requires ratification by national governments, but that’s not so far-fetched.
All The Time In The World
“Canada, Australia and Germany have adopted or proposed limits on high-speed trading and other technological developments that have come to define United States markets,” Nathaniel Popper wrote in The New York Times. “Countries around the globe are now using America as a model for what they don’t want to look like.”
Harsh? Maybe.
Too harsh? Probably not.
More than two years after the Flash Crash, and almost two months after the Knight Capital debacle, the U.S. Securities and Exchange Commission began evaluating the control systems of major brokerage firms — if only by questionnaire. The forms could help the agency better understand how brokerages use technology.
The new initiative could also help the SEC decide about kill switches, which turn off trading outside specified parameters in order to help curtail a disaster. Kill switches are among MiFID proposals, and NYSE Euronext, NASDAQ and other exchanges informed the SEC Friday that they are ready for kill switches.
The exchanges’ letter has come before an SEC meeting last Tuesday whose topics have included deterring another Knight Capital-style disaster. This is neither a coincidence, nor a surprise.
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