A ‘speed limit’ on high frequency trading has been proposed by one of the main trading platforms in the foreign exchange market.
Interbank trading platform EBS has suggested that computer-driven high frequency trades - conducted at high volumes in fractions of a second -are giving an unfair advantage to traders using the fastest systems. EBS argues that investment in new systems is effectively a technological arms race'to the bottom', with speed valued over a trading strategy.
According to the Financial Times, plans being set out by EBS will mean that incoming orders will be batched together every few milliseconds and dealt with in a random order, removing some of the advantage of being quickest. EBS, a division of ICAP, is set to begin a consultation on the proposals among its users over the next week.
Speaking to the FT Gil Mandelzis, EBS chief executive, said that the plans could see a wider clampdown on HFT across the financial sector, also warning that there is a "line beyond which marginal speed and smaller trade sizes add no value and actually harm the markets".
Algorithm-based HFT has proved to be divisive in the financial industry. There have been calls from regulators to clamp down on ‘first in first out’ trading, with the 2010 ‘flash crash’ in equities markets denting the credibility of HFT, and leading to investigations in the US from the Commodity Futures Trading Commission (CFTC). Concerns have also been raised by the European Commission in the past, while the UK government Kay review raised concerns over HFT, with high frequency trades said to make up over half of trades on the London Stock Exchange.
However, those representing the banks have argued that the practice will soon become accepted within the mainstream of trading.