Algorithmic Trading

Baroness Wheatcroft Excerpts

Monday 6th July 2015 Lords Chamber

Asked by

[Baroness Wheatcroft]

To ask Her Majesty’s Government whether the effects of algorithmic trading are being monitored and sufficiently regulated.

[The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley)]

My Lords, regulators continue to watch carefully and act when required in this fast-growing area of activity in financial markets. Investment firms and trading venues using algorithmic trading in the UK are already regulated and supervised by the Financial Conduct Authority and the Prudential Regulation Authority. From 2017 they will need to abide by the rules on algorithmic trading in the EU Markets in Financial Instruments Directive II.

[Baroness Wheatcroft (Con)]

My Lords, I thank my noble friend for his reply and declare my interests as listed in the register. MiFID II will undoubtedly improve regulation, although I welcome my noble friend’s assurance that the regulators will have the resources to implement those rules. However, does he share my wider concern about algorithmic trading—that it operates to the detriment of ordinary investors and is the antithesis of the long-term investment we should be encouraging? What can he do to address this?

[Lord Bridges of Headley]

My noble friend speaks with a lot of experience on these matters. I would point her to the very interesting Foresight research carried out by the Government, which looked into this. As a result of that, we do not think that the long-term investment decision-making by companies is undermined by high-frequency traders, which should be differentiated from algorithmic trading in the round. That said, during the last Parliament, in response to the Kay review, the Government initiated a broad review of reforms to address long-standing concerns that short-termism on the part of investors has impeded the creation of sustainable value by British companies. The Government are considering what steps are appropriate to make further progress in shifting the culture of equity markets towards long-termism.