European politicians are set to vote tomorrow on a controversial new measure to crack down on high-frequency trading (HFT) – firms that use high powered computers and super fast internet connections to profit from discrepancies in share prices – in Europe.
HFT first hit headlines in 2010 following the US flash crash that saw the Dow Jones Industrial Average briefly drop 1,000 points.
The release of Michael Lewis’ book Flash Boys – which argued HTF had rigged the $22 trillion US stock market – last month was followed by news of the FBI investigation into HFT, a lawsuit against CME Group and tomorrow’s proposed EU legislation.
Tomorrow’s vote includes restrictions to ensure price increments for securities don’t become too small (HFTs take advantage of price differences at minuscule increments) and mandatory tests of HFTs top secret trading algorithms.
Despite Lewis’s arguing that “everybody who has an investment in the stock market” has been a victim of HFT over the past few years, even if the new bill passes tomorrow it won’t take effect for another two and a half years.