Canada, Australia and Germany Seek to Curb High-Speed Trading – But Not the US?

Although the US was hit by a wave of stock market disruptions centered on ultra-fast trading algorithms (see E-TIPS® “SEC Requires Stock Exchanges to Create a Single System to Track Trading” July 25, 2012, Vol 11, No 2), according to a recent article in The New York Times (“Beyond Wall Street, Curbs on High-Speed Trades Proceed”), it is regulators in Canada, Germany and Australia that “are now using America as a model for what they don’t want [trading regulation] to look like”. At US Senate hearings in September, one Senator asserted that “[the US] marketplace has been evolving very quickly and it is not clear that our rules have kept up”. Again, according to the NYT article, the broadest and fastest changes resulting from the so-called “flash crash” of 2010 and Knight Capitals’ runaway trading in August, 2012 have come out of Canada where regulators began to increase the fees charged to firms that flood the market with orders the result of which, not surprisingly, has been more efficient trading. Earlier in 2012 firms began to be charged for all orders a firm cancels, not just for the orders executed. Any greater efficiency will have a significant impact, since about 25% of all stock trading in Canada is done by high-speed firms. For further reading, a columnist for Barron’s writes on August 11, 2012 “Why High-Frequency Trading Doesn’t Compute”. Summary by: Richard Potter