FSA 'considering high-frequency trading regulations'

The Financial Services Authority (FSA) is considering passing stricter regulations on the new generation of high-frequency trading firms after recent concerns from UK equity market observers.

Just last week, one US politician called on the Securities and Exchange Commission to ban ’flash-trading’.

The senator argued that the practice of using complex computer formulas to carry out large numbers of trades gave such high-frequency firms an unfair advantage over smaller enterprises or fund management companies.

According to some critics, the sophisticated algorithms used by some trading firms help to fuel volatility and exaggerate any small fluctuations and price discrepancies between markets.

While the City regulator has yet to issue a formal statement on its attitude to high-frequency trading, the Wall Street Journal has reported that it is currently in talks with a number of London-based asset managers as it looks to establish what, if any, action is needed.

An FSA insider told the newspaper: ’The FSA is working with its counterpart regulators to monitor these developments, and to respond as appropriate.

’We recognise that equity markets are continuing to evolve rapidly, partly because of technological developments, and partly in response to legislative and regulatory changes such as Mifid (the European Commission directive that took effect in November 2007).’

At the same time, it has been reported that the FSA borrowed £200 million over the past year as it fell into debt for the first time in its history.
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