Politics

Enhanced vigilance in high-frequency trading

The German Federal Ministry of Finance (BMF) has recently published a draft law on the prevention of risks and abuses in computer-based algorithmic high-frequency trading, after the coalition had agreed to first outlines for regulating the controversial practice. According to the Ministry’s draft, in future all market participants who are admitted to superfast high-frequency trading on a German stock exchange or multilateral trading system should come under the Banking Act (KWG) and the Securities Trading Act (WpHG) and in the future be supervised by the Federal Financial Supervisory Authority (BaFin). This would ensure enhanced monitoring by the regulators. Market-manipulating strategies such as continual price inquiries with no real intention to trade should be banned. The central criticism of high-frequency trading by the government and other market observers is that the computers can by their speed fuel stock market trends and thus disrupt the market and thereby cause major fluctuations or price collapses.