British government backs probe into the impact of high frequency trading

THE?government yesterday said it was backing a study of how high-frequency trading (HFT) may shape London as a financial centre over the next decade.

“The project will look ahead to developments in financial markets, with a prominent focus on high frequency trading,” financial secretary to the Treasury Mark Hoban said in a speech.

HFT involves the use of computers by investors to dart in and out of markets and exploit tiny changes in share prices.

HFT has grown sharply over recent years to account for about a third of trading volumes in Britain to about three-quarters of all share dealing in the United States.

The London Stock Exchange, which is losing market share to low-cost rivals, has hired a technology specialist to attract business from HFT firms.

Regulators are already worried about the fact that so much volume passes through just a few lightly regulated and thinly capitalised firms.

The UK study will look at how to avoid “technology-led economic instabilities”.

A group of experts will help guide the project, including Andy Haldane, director of financial stability at the Bank of England.

The UK project will also look at how computer-generated trading will affect financial stability, share price formation and liquidity, competition, trading costs and the future role and location of capital markets. City watchdog the FSA is due to give its latest thinking on HFT tomorrow.