Monday, October 29th 02:31 PM IST

Europe to ban high-frequency trading in commodities

# European Parliament  # high-frequency trading  # Europe debt crisis  

European Parliament is also cracking down on speculation in commodities markets in a bid to reduce big price swings.

BRUSSELS(BullionStreet): European Parliament finally approved new security rules in order to tighten regulations on so-called high-frequency trading (HFT) in commodities including gold in the continent.

The rule, Europe's first direct curbs on ultrafast trading and investors who take bets on commodity prices, which uses computers to dart in and out of markets in milliseconds and exploit tiny price differences, because they fear it makes markets more volatile.

They are also cracking down on speculation in commodities markets in a bid to reduce big price swings.

European Parliament voted by 495 to 15 in favour of MiFID II, a draft law that updates EU securities rules to reflect lessons from the financial crisis and rapid advances in trading technology.

But it threw out an attempt to ban financial advisors from pocketing commission on the products they sell to consumers, sticking instead to requirements for better disclosure. Law set to apply from 2014.

The new rules include the introduction a synchronised clock for trading shares, bonds, commodities and other instruments across the EU so regulators can spot abuses more easily in a market where many exchanges and platforms trade the same shares.

Share orders would have to remain in the market for at least 500 milliseconds, far longer than HFT traders stay at present.

The Parliament will now sit down with EU states to agree a final text that will become law around 2014, and the broad majority reinforces the lawmakers' negotiating hand.

Supporters of HFT argue it brings welcome volume to markets, making it easier for buyers and sellers to find counterparties.

The new rules also take aim at what some policymakers see as speculation in derivatives for commodities like food and oil by imposing caps on how many contracts can be held to avoid cornering markets.

Manufacturers who use derivatives to insure, or hedge, against risks of adverse price moves in raw materials would not be affected by the new position limits.

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