BERLIN Jan 27 German Chancellor Angela Merkel's
centre-right coalition will on Monday 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
"flash crash" in the United States in May 2010, when the stock
market fell more than 1,000 points, or nearly 10 percent, within
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
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
Once the 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.
Parliament is expected to approve the changes, as the coalition
holds a majority in both the committee and the parliament.
The German government's move to clamp down on speed trading
comes as the European Union also plans to tighten regulation on
Sources have previously told Reuters that the German
government is attempting to ratchet up the pressure for EU-wide
regulation on the sector.
EU member states are discussing the rules governing
high-frequency trading as part of a reform of MiFID securities
trading rules. However, while the European Parliament wants to
introduce a minimum holding period for securities of 500
milliseconds, Germany's ruling coalition has rejected this.
Frankfurt stock exchange operator Deutsche Boerse
has previously criticised the government for not waiting until
Brussels comes up with EU-wide regulation.
"If Germany goes it alone on regulating high-frequency
trade, it could hugely disadvantage Germany as a financial
centre," Deutsche Boerse said in a statement earlier this month.
"There is a danger that market participants from Germany
will take their trade to other countries or to less well
regulated markets," it said.
High-frequency trading companies have expanded rapidly in
the past decade and now account for some 70 percent of the daily
turnover of shares in the U.S., according to some estimates. In
Germany it is responsible for around 40 percent.
As such, speed trading is a major source of income for
(Additional reporting by Andreas Kroener in Frankfurt, Writing
by Michelle Martin, Editing by Gareth Jones and Alison Birrane)