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LONDON, April 29 Europe's markets watchdog is
stepping up scrutiny of high-frequency trading to assess the
impact of so-called "ghost liquidity" and to ensure national
regulators and trading venues have strong enough controls in
The activity of high frequency traders is in the spotlight
after "Flash Boys", a book by Michael Lewis, last month said
they make billions of dollars from other investors by using
ultra-fast telecommunications links and special access to
exchanges to gain an unfair advantage.
The United States is investigating high-speed traders for
possible insider trading and looking at whether ordinary
investors are put at a disadvantage by the high-frequency
traders, who move in and out of markets quickly to build up big
profits over time.
"This (market) needs to be regulated and supervised
properly. This needs to be intensely supervised, but at the same
time it's not a ban or stopping of high-frequency trading,"
Steven Maijoor, chairman of the European Securities and Markets
Authority (Esma), said at the Reuters Financial Regulation
Summit on Tuesday.
Maijoor said Esma will visit Europe's major national
regulators in the next few months to assess how guidelines
issued in 2011 are being put into practice, specifically to
ensure internal controls and expertise at trading venues and
firms are rigid enough.
The watchdog will also carry out more research on the impact
that high-frequency trading has on liquidity and other areas of
"Is the liquidity provided by high-frequency traders really
liquidity or is it ghost liquidity?" Maijoor said, referring to
trading orders that can disappear before trades are executed.
Critics say they can be used by high-frequency traders to give
them an advantage and do not improve market liquidity.
Esma estimated about 60 percent of orders in Europe's major
trading venues comes from high-frequency trading firms, but they
only account for about a quarter of trading.
Germany's Deutsche Boerse said on Tuesday it did
not expect its business to be hurt by the renewed regulatory
zeal on high-frequency trading.
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(Reporting by Steve Slater. Editing by Jane Merriman)