Germany delays decision on high-frequency trading law

BERLIN Mon Jan 28, 2013 1:05pm EST

BERLIN Jan 28 (Reuters) - German lawmakers have delayed making a decision on changes to a draft law to clamp down on high-frequency trading in shares and other financial instruments due to the issue's complexity, a source from Chancellor Angela Merkel's party said on Monday.

"We still need to clarify lots of technical details," the source said. "That is why we need to have a second meeting."

Merkel's centre-right coalition had been expected to decide on changes on Monday, but the source said a decision would probably not now be reached until the end of the week.

High-frequency traders use computer algorithms to generate numerous, lightning-speed automatic trades that make money from tiny price moves in the market. Holding investments for short periods only, they have been accused of increasing market volatility and increasing the risk of a market meltdown.

But such trading is a major source of income for financial market operators, with Deutsche Boerse saying around 40 percent of the trading volumes on its share trading platform Xetra and on its options and futures exchange Eurex now come from high frequency trading.

Turnover at Eurex last year fell 18 percent to 2.3 billion contracts while Deutsche Boerse said the value of shares traded on its Xetra market fell 23 percent to 1.16 trillion euros ($1.56 trillion).

Under its proposals the German government wants high-frequency traders to register with market regulators and disclose their secretive trading algorithms.

It also wants to limit the number of decimal points given in market prices and prevent traders from requesting pricing information without intending to trade.

Germany's move to tighten its own market regulations comes as European Union member states are also discussing the rules governing high-frequency trading as part of a reform of the Markets in Financial Instruments Directive (MiFID).

An EU-wide reform is not expected to come into force until at least 2015 and Deutsche Boerse has previously criticised its government for not waiting, for fear that a unilateral approach would lose it business.

Once Germany's coalition has agreed on amendments to the draft law with the Bundestag lower house of parliament's finance committee it will need to be approved by the German parliament. This approval should be granted as the ruling coalition holds a majority in both the committee and the parliament.

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