Other Nations Begin to Regulate Stock Market High-Speed Trading, but not U.S.

Friday, September 28, 2012
Flash Crash May 6, 2010 (graphic: CNBC)

Having observed what high-frequency trading has done to U.S. markets, foreign governments are doing what American officials have avoided: regulate.

 

In traditional stock trading, a buyer, through a broker, purchases shares in a stock with the hope that over time they will grow in value. In high-frequency trading, institutional investors use computerized programs to buy stocks and then sell them within hours, minutes or even seconds, taking advantage of slight fluctuations in value.

 

On May 6, 2010, U.S. markets were disrupted by a “flash crash” that sent the Dow Jones average plummeting more than 600 points in a matter of minutes, before coming back again almost as quickly. On August 1 of this year, The Knight Capital Group lost $440 million in 45 minutes as a result of a computer glitch and sent the trading firm to the brink of bankruptcy.

 

In Germany, lawmakers are considering legislation that would require high-speed trading firms to register with the government. The bill would also limit the firms’ ability to quickly execute orders, which cuts to the essence of why the firms became successful in the first place.

 

The European Parliament is debating a similar plan that would have to be approved by the member states of the European Union.

 

A leading Australian official has discussed bringing high-speed trading firms under tighter regulation and mandating they perform “stress testing” to ensure their activity does not disrupt markets.

 

Meanwhile, Canada has adopted fees that the firms must pay if trading exceeds a certain level. Also, new rules going into effect in October will seek to limit the growth of “dark pools,” secretive trading venues that operate outside conventional stock markets.

 

Greg Mills, head of stock trading at Canada’s largest bank, said his country took action on high-speed trading because, “We don’t want to look like the U.S., but we have to do it better than we are now.”

 

Meanwhile, in the United States, big banks and other firms that have profited from high-frequency trading have successfully resisted regulation.

-Noel Brinkerhoff, David Wallechinsky

 

To Learn More:

Beyond Wall St., Curbs on High-Speed Trades Proceed (by Nathaniel Popper, New York Times)

Like Athletes who Dope, Wall Street’s High-Speed Traders Try to Keep Ahead of Regulators (by Noel Brinkerhoff, AllGov)

How Goldman Sachs Made $100 Million a Day in a Flash (by David Wallechinsky, AllGov)

Comments

Soni 8 years ago
No, it's not scottrade. And it's detneifily not Fidelity either!OptionsXpress, ThinkorSwim, or Interactivebrokers are probably the top three choices. Each has their pros/cons depending on what's important to you.If it's just for trade execution, etc, then Optionxpress is very good. They also have some decent rates (email me). They also match up to internal orders as well when they can. Additionally, they have some interesting scanning tools that can help you apply advanced strategies such as ratio spreads, etc to a stock.Interactivebrokers is probably the cheapest. It's software based and takes a while to get used to. They route most of their trades through themselves, so that's one reason they are cheaper. You'll have to look at how active you are to see what fits best for you. Of the three, IB has the least desirable search tools, etc.TOS is relatively new. They have some amazing tools and are very hungry for business right now (again, email me and I can help you with this). They have some great routing tools and have scanners specific to spreads, etc.They also (currently) have some fantastic free training as well. Executions have been decent as well. And in the long run, your executions'll be the most important.With TOS and OXPS, I've been able to call their trading desk and they've been able to help with orders and/or take orders when I've not been at a computer to do the trade as well.So, decide what's important to you. You might also check out Barron's annual article on brokerages that comes out in the spring.If you have any further questions, I'll be glad to assist where I can.
Julia 8 years ago
For those interested in learning what the SEC and CFTC are thinking about HFT, don't miss High-Frequency Trading Leaders Forum 2012 Chicago, October 9. More info: http://www.high-frequency-trading-conference.com.

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