EU Approves Curbs on Commodity Derivatives, High-Frequency Trading,Black Pools Today

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ASusilovic

The European Union will seek to limit trading in commodities derivatives and curb high-frequency trading as part of proposals to overhaul the region’s financial- market rules.

Today’s plans, which also include a crack down on trading through so-called dark pools, are aimed at reducing market volatility, increasing regulatory oversight and promoting competition. Specific measures include requiring national regulators to either cap the number of commodity derivative contracts that traders can enter into, or make “alternative arrangements” with the same effect.

“The crisis serves as a grim reminder of how complex and opaque some financial activities and products have become,” Michel Barnier, the European commissioner responsible for the proposals, said in an e-mailed statement today. The plans “will help lead to better, safer and more open financial markets.”

French President Nicolas Sarkozy has demanded steps to curb commodity derivatives speculation, which he blames for driving up world food prices. He has made the issue a priority of France’s presidency this year of the Group of 20 nations. The Institute of International Finance, an association representing global lenders, said last month that there was “little convincing evidence linking financial investment with trends in commodity prices and volatility.”

The European Commission, the 27-nation EU’s executive arm, said it is scheduled to formally approve the measures at 10 a.m. in Brussels without further debate

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The EU measures include requiring firms that offer high frequency or algorithmic trading services to prove that they have sufficient risk controls in place and to ensure that clients with direct access to the markets are properly qualified.

The safeguards include requiring trading venues to have “robust controls against problems such as disorderly trading, erratic price movements, and capacity overload,” the commission said. “Limits will be placed on how many orders per transaction participants can place as well as on how far venues may compete in attracting order flow.”

http://www.bloomberg.com/news/2011-...odity-derivatives-high-frequency-trading.html
 
'French President Nicolas Sarkozy has demanded steps to curb commodity derivatives speculation, which he blames for driving up world food prices'

Theses would be the words of a remote African dictator. I am not sure if this is going to turn into a funny parody Woody Allen style or a real modern financial and social catastrophe.

These European leaders are ludicrous clowns, but they indeed are in charge.
 
<B>B. Taking account of technological innovations
10.</B> <I>What proposals are being suggested to deal with issues raised by algorithmic and high frequency trading? For example, the potential risk that increased use of automated trading could contribute to a crash such as the one that occurred in the US?</I>

Algorithmic trading is a form of trading where a computer algorithm automatically decides to place an order with minimal or no human intervention. An important form of algorithmic trading is high frequency trading, where a trading system analyses the market at high speed and then sends large numbers of orders very quickly.

The proposals plan to introduce a series of safeguards both on market participants who use algorithms as part of their trading strategies as well as on trading venues where algorithmic and high-frequency trading takes place:

Information requirements towards regulators on the strategies of various algorithmic traders will be enhanced, and stricter checks will be imposed on arrangements whereby members of trading venues allow other firms employing high-frequency algorithms to access public markets through their systems. Currently, regulators do not know which kinds of strategies are being used, by which strategy an order is generated, and members may not check what sort of strategies the persons using their systems are using and how those persons control their strategies.
Trading venues will also be required to have robust controls against problems such as disorderly trading, erratic price movements, and capacity overload. <B>To mitigate the latter, limits will be placed on how many orders per transaction participants can place as well as on how far venues may compete in attracting order flow for example by reducing the size by which prices may rise or fall ("tick size") or through the design of their fee structures. The order to transaction ratio and the minimum tick size will be determined in subsequent measures.
Additionally, requirements for algorithmic traders to trade on a continuous basis are foreseen to reduce volatility and contribute to more orderly trading.</B>
Finally, we will require venues to be able to halt trading in case of significant price movements ("circuit breakers") in a harmonised fashion.

http://europa.eu/rapid/pressRelease...format=HTML&aged=0&language=EN&guiLanguage=en
 
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