EU lawmakers urge tougher HFT, commodities rules

LONDON Mon Feb 13, 2012 3:48pm EST

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LONDON (Reuters) - A draft European Union law to crack down on ultra-fast trading and stop abusive positions in commodities needs toughening up, EU lawmakers said on Monday.

Computerised "algorithms" and high-frequency trading (HFT) have been blamed by critics for making markets more volatile, although others say the practice boosts liquidity.

The EU's executive European Commission has proposed new curbs on computerised trading, like monitoring access to markets, as part of its wider reform of securities markets known as MiFID II.

"This is really a hot potato because there are places in the world where you can play on the real economy," Markus Ferber, a German centre-right member of the European Parliament, told a webcast meeting of the assembly's economic affairs committee in Strasbourg, France.

"I think the Commission proposal does not go far enough," said Ferber, who is steering the bill through parliament.

He found support across the political spectrum, signalling that changes are likely. EU states have joint say.

"I feel the (HFT) proposals are too restricted. They don't take this far enough," said Robert Goebbels, a centre-left lawmaker from Luxembourg.

Pascal Canfin, a French Green Party member, said long-term investors complain of being beaten by the faster HFT traders. "We have to address the question of the usefulness of this," Canfin said.

There was broad support for toughening up plans in the draft law to stop "speculative" commodities traders from building up large positions that can influence food and energy prices.

The draft proposes a mix of "position management" such as disclosures and temporary position limits. The United States has gone further with fixed position limits for several commodities.

"We are going to have to be not quite so vague and unclear in how we define what we allow. The Commission proposal does not go far enough," Ferber said.

"If someone is getting involved in commodities trading without being at all interested in the commodities themselves then how can we keep them under control?" Ferber said.

Canfin agreed, "If our position is weaker than what the U.S. has agreed to in principle, we would contribute to reducing the value of the U.S. text."

NO NEW PLATFORM

The draft law proposes a new breed of trading platform known as an Organized Trading Facility (OTF) for executing stock, bond and derivative contracts currently transacted off exchange.

It is Europe's counterpart of a new U.S. platform known as Swap Execution Facility (SEF) for derivatives.

Exchanges argue there is no need for a new OTF category and that contracts should be channeled to the existing, more strictly platforms like themselves.

"Is this really necessary? The more I look at this ... the more I feel we don't really need this," Ferber said.

Others said a new category could create more confusion, or that existing types of platforms could be tweaked to accommodate the different contracts.

"I am sitting on a fence at the moment on whether the OTF category could be beneficial," said UK centre-right lawmaker Kay Swinburne.

The current MiFID rules are only four years old, but the Commission says they need updating to apply lessons from the financial crisis and advances in trading technology.

The committee aims to vote on the draft law in July and open talks with EU states on a final text for approval after the summer. It would come into force around the start of 2015.

(Reporting by Huw Jones; Editing by Steve Orlofsky)

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