Germany Does What The SEC Hasn't - Prepares To Ban HFT

Tyler Durden's picture

The EU assembly just voted affirmatively to impose a spate of rules to control 'high-frequency-trading that, as the WSJ reports, was advanced by Germany following their concerns that speedy traders have brought instability to markets. It is somehow reassuring that three-years after we first brought HFT to the mainstream's agenda, at least one nation is taking it seriously, doing something about it, instead of being filibustered into the 'liquidity-providing' meme. The rules will initially require registration, collect fees on excessive use of HFT methods, and install circuit breakers with the goals to "limit the risks associated with high-frequency trading" per a senior German FinMin; but the more stringent rules to come will have the greatest impact as they intend to include requirements for orders to rest on the exchange book for at least half-a-second, and potentially order-to-trade ratio caps. Not surprisingly, the HFTs believe a "one-size-fits-all approach would be very harmful." Indeed - to their profits.


Via WSJ: Germany to Tap Brakes On High-Speed Trading

BERLIN—Germany is set to advance a bill Wednesday imposing a spate of new rules on high-frequency trading, escalating Europe's sweeping response to concerns that speedy traders have brought instability to the markets.

 

The measure seeks to require traders to register with Germany's Federal Financial Supervisory Authority, collect fees from those who use high-speed trading systems excessively, and force stock markets to install circuit breakers that can interrupt trading if a problem is detected.

 

...

 

"The goal of the German law is to limit the risks associated with high-frequency trading," he said.

 

Germany's push comes as regulators and investors on three continents fret over the recent dominance of high-frequency traders, which often profit from paper-thin differences in stock and derivatives prices, and the role their computer programs may have played in some of the market's most frantic moments since the financial crisis.

 

In May 2010, in the so-called flash crash, the Dow Jones Industrial Average plunged 1,000 points before recovering most of its losses within hours. The exact causes of the selloff are disputed.

 

More recently, Knight Capital Group Inc. KCG +5.21% lost $440 million in a computer trading glitch...

 

... Germany hopes its bill will put pressure on other European leaders to support EU-wide regulation for high-frequency trading.

 

... establish the Parliament's position on a number of stringent new rules, including "speed bumps" for high-frequency trading.

 

These include the requirement for orders to rest on the exchange order book for a minimum of half a second—an eternity for firms accustomed to trading in millionths of a second—before they can be canceled or modified, and penalties for high cancellation rates.

 

On Aug. 1, France introduced a high-frequency trading tax as one of the three levies that comprise its financial-transaction-tax package.

 

In the U.S., regulators have struggled to get a grip on the issue. The Commodity Futures Trading Commission this year formed a group to define high-frequency trading in order to better track it, while the Securities and Exchange Commission has announced plans to build a "consolidated audit trail" that can monitor frenetic trading activity.

 

The SEC also is investigating whether some high-speed firms use special advantages provided by exchanges to gain an edge over ordinary investors, according to people familiar with the matter.

 

...

Industry advocates caution against regulations that could hamper the ability of traders to react quickly to market shifts and manage their risks.

 

Imposing caps on the number of trades or instituting order-to-trade ratios, as proposed in the German bill, could restrict traders from being able to revise their quotes, the price at which they buy or sell stocks, based on new information, they say.

 

...

 

"We think a one-size-fits-all approach would be very harmful," warns Remco Lenterman, chairman of the FIA European Principal Traders Association, which represents firms that trade their own capital.

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LongSoupLine's picture

Fuck yeah!!

 

Ich liebe Germany!

hedgeless_horseman's picture

 

 

"I felt a great disturbance in the Farce, as if millions of algos suddenly cried out in terror and were suddenly silenced. I fear something terrible has happened."

 

-Darth Faucon

GetZeeGold's picture

 

 

Next thing you know they're gonna put a speed limit on the Autobahn.

 

Not a bad idea considering all the drunks on the road.

 

Dr. Engali's picture

I wish I could drive on a road like the Autobahn...the land is so flat in corn country you could drive for an hour before you hit any congestion. The problem here isn't other cars on the road ,it's that . the roads are so shitty 

exi1ed0ne's picture

I've driven in Germany, and the most welcome (as well as somewhat terrifying) sight is this:

http://www.autobahnbound.com/wp-content/uploads/2009/06/autobahn-end-of-...

The no restrictions sign.  You find them not just on highways, but also country roads.  It is a great feeling not having the nanny state breathing so heavily on you, but all the accidents I've seen were fatal.  Choice and responsibility in balance.

bvrulez's picture

the no restriction sign on coutry roads means 100 km/h maximum. which is still more than in your country, but obviously a restriction. :)

aerojet's picture

We have plenty of fatalities in the states even with speed limits.  And btw, since Germany invented most of the practices we related to Big Brother, I don't see how them having no speed limits in a few places is exactly a breath of fresh air.  A friend of mine who was visiting Germany received a ticket for not wearing his seat belt while sitting in a parked car!  I noticed when I was there that people are very, very law abiding, as in, they won't even jaywalk--that doesn't come from the state not leaning hard on people. 

Bunga Bunga's picture

I noticed when I was there that people are very, very law abiding, as in, they won't even jaywalk

This depends very much on the region.

Speed limits in the US make sense, since speeds above 70 mph are close to suicide. Going at 100 mph in Germany feels like 50 mph in the US. And if you drive 100 mph on the Autobahn, don't use the left lane, because it is reserved for the fast cars.

LawsofPhysics's picture

But what about the liquidity? These paper-pushers stink of fear.  Bring it.

Dr Benway's picture

Yeah the humanity! How will we live without the 'liquidity' provided by HFTs putting up orders for a single share lasting one microsecond?

SOL is a multibillion dollar Australian listed company. The most common trade in this stock is for one share at 13 bucks. On the 29/6 at 15:58, the SOL share price was ramped 3% by an algo trading five shares. Check out my slideshow on Australian securities fraud:

http://s1144.photobucket.com/albums/o489/_DrBenway/

Cash2Riches's picture

Wow this will be a huge step if they go ahead with it. HFT is a plague on the markets.

 

http://silverliberationarmy.blogspot.ca/

exi1ed0ne's picture

Don't worry, the legislatiors will get the warning about pissing in the pool:

http://www.zerohedge.com/news/2012-09-26/europe-goes-pear-shaped

Mountainview's picture

But Germany fighting HFT alone...LOL...

DeadFred's picture

What we have here is a failure to communicate (by way of campaign contributions). The HFTs can easily solve this.

Lost Wages's picture

Anti-Nuclear-Power and now Anti-HFT? These krauts are after my own heart.

JustObserving's picture

Looking out for the little guy - what a novel idea.  In the land of the free, we have complete regulatory capture.

Slope of Hope's picture

Cue the HFT whores on CNBC.

GetZeeGold's picture

 

 

Paging Maria......please pick up the white courtesy phone...pronto!

Cunnial's picture

FUCK HFT... Long Live Retail! 

GetZeeGold's picture

 

 

Dude....I get all my crap at Sam's Club.

 

This is not an endorsement until they pay me.....then it is.

 

Temporalist's picture

HFT provides the liquidity of the wealthy and connected pissing down the backs of everyday people.

Captain Planet's picture

Where's the Athens riot-cam, Tyler?

Confundido's picture

Fucking bastards! They won't do shit to fix the problem. They will just tax the other sons of bitches, so they can share in the fucking revenue.

What needs to be done is to force exchanges to allow investors to tick on/off the option: "Do you want to route this order through an HFT infested platform or not? A higher trade fee may be applicable if you choose not to, but we guarantee your order will not be frontrun"

aerojet's picture

That would be just fine.  Also what would be fine is to assess a fee for each transaction even if it gets pulled before a fill so as to avoid all the denial of service, or excuse me, bid stuffing, that takes place. 

Dr. Engali's picture

The bankers better hurry up and buy some people off so they can squash that clearly destructive bill.

hidingfromhelis's picture

If that and the imminent sanctions don't work, when do we start bombing them?

walküre's picture

The End

Director .......... Financial Markets

Main Actor ........ Mario Draghi

Sponsored by the German Taxpayer

 

Handelsblatt declaring the "end of the Euro crisis".

LOL! Ze Germanz are declaring the Endsieg! You all know what comes next.

I really hope for their sake that it's satire.

FL_Conservative's picture

Mary Schapiro, the ignorant and useless current chair"person" of the SEC doesn't think that HFT puts the average investor at a disadvantage.  Heard those exact words from Schapiro on an AP news report Monday evening while I was driving.  Almost drove into the ditch, I was so fucking beside myself.  That is why NOTHING will ever be done by her.

jeff314's picture

dont forget she's a JEW....

FL_Conservative's picture

The only thing one needs to know is that she is COMPLICIT.

SMG's picture

She's an Luciferian Oligarch puppet, and the Oligarchs are NOT Jewish.

JustObserving's picture

Her parting gift from FINRA may explain her views:

Some people think it's a good idea for regulatory officials to receive pay like the Wall Streeters they're supposed to reign in.

Turns out at least one of them already has - Mary Schapiro, who's now the head of the SEC.

In 2008, FINRA paid Schapiro almost $9 million ($8,985,334.02 to be exact).


http://articles.businessinsider.com/2010-10-11/wall_street/29989801_1_finra-board-million-gift-incentive-compensation#ixzz27apWsyUN

 

hedgeless_horseman's picture

 

 

 

 

In 2008, FINRA paid Schapiro almost $9 million ($8,985,334.02 to be exact).

flag as a sign of the apocolypse (1)

Quinvarius's picture

CFTC and SEC humilated again.

GetZeeGold's picture

 

 

 

It's OK......they don't really seem to mind.

 

exi1ed0ne's picture

Pvt. Joe Bowers: Why me? Every time Metsler says, "Lead, follow, or get out of the way," I get out of the way.
Sgt. Keller: Yeah, when he says that, you're not supposed to choose "get out of the way." It's supposed to embarrass you into leading - or at least following.
Pvt. Joe Bowers: That doesn't embarrass me.

max2205's picture

Duh. Thanks GERMANY. I hope you throw HFT in the trash where it belongs

Mercury's picture

How is that going to work exactly with German names listed on multiple exchanges?

Sounds potentially arbilicious...

Cthonic's picture

That is the dilemna. One could add legal boilerplate to a security issuance which limited registering and listing of the security to a single exchange.

Meesohaawnee's picture

look at the euro/russian market. at least if you look at the charts thats what a real market should look like

ThisIsBob's picture

A whole half second?  Golly!

Comay Mierda's picture

that is an eternity for HFTs

dont worry though, gOldman NutSachs will be bribing all German regulators in 3... 2... 1...

SpykerSpeed's picture

Agreed, WHAT IF THE FUNDAMENTALS CHANGE 1/4 SECOND AFTER I BUY??  Ugh.  *snorts coke*

OneTinSoldier66's picture

"A whole half second?  Golly!"

 

I thought the same thing at first. But there's more to it than that...

 

'...at a minimum'

q99x2's picture

SEC can't. The exchanges just spent billions filling the floors below with super cooled artificial intelligence beowulf parallel processing computers with fiber trunk lines upstairs to siphon the beejesus out of the markets. What are they susposed to do call wrecking and hauling because of some low paid bureaucrats? Hell no they will bribe the SEC and maybe this time with bitcoin.

Nobody For President's picture

call wrecking and hauling?

What a wonderful idea!

Bring back carbon-based trading!

(I soppose that makes me a luddite.)

ThisIsBob's picture

Just wait a minute...  I the quest for fairness in the markets, the exchanges assure that all co-located machines have the same length cable. 

Sutton's picture

The floor traders will have jobs again.

lailapa's picture

GERMANY, the DISGRACE of Europe

...the barbarians, who forced beautiful Europe to get down Zeus’ “back” and made her a prostitute.

...the unworthy Europeans, who in 1945 “took Europe down” from “Mount Olympus” and in 2012 relinquished “enslaved” Europe to the Phoenician loan sharks.

http://eamb-ydrohoos.blogspot.gr/2012/02/germany-disgrace-of-europe.html

.

Authored by PANAGIOTIS TRAIANOU