July 11, 2012

The world of currency trading is apparently the next front in the fight to rein in certain types of high-frequency traders, whom many market participants continue to hold at least partially responsible for the 2010 flash crash.

On Tuesday, EBS – ICAP's electronic FX platform – announced a series of new dealing rules after months of getting feedback from both its buy-side and investment banking clients. Among the new rules, the Financial Times points out , are restrictions on flash orders – automatic trades that are fired off at warp speeds by high-frequency traders.

The paper noted that many investors and regulators are concerned that such techniques mean price quotes can vanish almost as quickly as they appear, and ultimately make liquidity illusory and lead to an unstable marketplace.

From the Financial Times:

The move was widely seen as a charm offensive by ICAP as it attempts to forge better relations with its investment banking clients, who have long complained that certain types of high-frequency traders can distort the market. This was seen in 2010 when the US equity market experienced the flash crash, partly blamed on HFT.

"The forex industry has been proactive for the past 20 years and wants to make sure a flash crash does not occur in this market," said Gil Mandelzis, chief executive at EBS.

"We want to combat anything that is not providing genuine liquidity for the EBS platform," he added.

ABOUT THE AUTHOR
As the Senior Editor of Advanced Trading, Justin Grant plays a key role in steering the magazine's coverage of the latest issues affecting the buy-side trading community. Since joining Advanced ...