German government to agree a law on high-speed trading

City A.M. Reporter

AN Chancellor Angela Merkel’s centre-right coalition will today decide on changes to a draft law to clamp down on ultra-fast trading on stock exchanges, which it sees as stoking excessive market turbulence.

High-frequency traders use computer algorithms to generate numerous, lightning-speed automatic trades that make money from tiny price differences in the market. These trades hold investments for short periods only and have been blamed for causing market volatility, such as the so-called flash crash in the US in May 2010, when the stock market fell more than 1,000 points, or nearly 10 per cent, within minutes.

Keen to avoid similar crashes on German exchanges, Merkel’s government wants to implement regulation requiring traders to register with stock exchange regulators and disclose their algorithms. It also wants to limit the number of decimal points given in market prices and to prevent traders from requesting pricing information without intending to trade. Other practices like scalping, which involves using misleading market signals to influence prices, will be classed as misuse.

Once the coalition has agreed on amendments to the draft law with the Bundestag’s finance committee, it will need to be approved by the parliament.