| LONDON, March 23
LONDON, March 23 Exchanges should slap higher
fees on traders who cancel many of their buy and sell orders to
stop potential abuses from ultra-fast high-frequency trading, a
senior European Union lawmaker said on Friday.
"We need a deceleration of high-frequency trade, more retail
investor protection and containment of excessive speculation,"
said Markus Ferber, a centre-right German member of the European
Parliament's economic affairs committee.
Ferber is steering a sweeping reform of EU securities
markets, known as MiFID II, through the bloc's assembly.
It includes a requirement for traders to keep orders in the
market for a minimum period making it more likely a buyer will
Ultra-fast traders who use computer systems known as
algorithms have been accused by critics of creating volatility
by jumping in to flood markets with orders, only to cancel them
in fractions of a second.
This process, nicknamed quote stuffing, can be used to
artificially move a price one way or another for the trader to
exploit with a real order.
"We need a minimum period for keeping an order before it can
be cancelled, a so-called circuit-breaker," Ferber said in a
Ferber may push for an order to stay on an order book for at
least 500 milliseconds.
"On top of that, additional cancellation fees ought to be
introduced. That way ultra-fast transactions can be rendered
less interesting and excessive speculation can be contained,"
As regulators take a closer look at HFT, exchanges in
countries such as Germany and Italy are moving to introduce or
reintroduce fees on traders who breach a pre-set order-to-trade
Traders fear EU regulators will introduce a "one-size fits
all" ratio across several types of securities without taking
into account any differences, said Remco Lenterman, managing
director of Amsterdam-based IMC and chairman of the FIA European
Principal Traders Association, a lobby for about 20 automated
"We don't see a link between message traffic and market
abuse," Lenterman said.
The introduction of minimum resting periods for orders
"could result in a decrease in liquidity by hampering effective
risk management", the FIA said in a statement.
Automated trading has been "pivotal in improving market
quality" and academic research showed it had cut trading costs,
EU states have joint say with parliament on the reform and
the approval process moves up a gear with Ferber's report on the
measure due to be published as soon as next week.
It may propose excluding trading shares on a planned new
breed of trading platform, known as an organised trading
facility or OTF, so they would be traded on a more heavily
regulated platform such as an exchange.