Algorithmic Trading

Lord McFall of Alcluith Excerpts

Monday 6th July 2015 Lords Chamber

[Lord Bridges of Headley]

I reiterate that the PRA, and Andrew Bailey in a speech last month, drew attention to a lot of these issues. I hope the noble Baroness takes some consolation from that and from what I said about the FCA. On smaller investors, as I said, the Government are looking at this issue. I draw attention to the Foresight report which said,

“transaction costs have fallen for both retail and institutional traders”.

We therefore need to look at this in a balanced and proportionate way.

[Lord McFall of Alcluith (Lab)]

My Lords, this House received compelling evidence from the Economic Affairs Committee that through HFT, billions of pounds of shares were being traded every day with little or no public exposure. Technology is being used not to ensure that we introduce fairness and neutrality into the market, but to receive information ahead of the rest of the market. This was described as the battle of microseconds, whereby ordinary investors and others are screwed because they do not understand the concept. The Government and the regulators are on the outside looking in; full transparency of the market is essential. Government have a public duty, and there has been laxity so far; they really should put their skates on. Then, the next time there is a “flash crash” or a liquidity value, they cannot put their hands up and say that it is nothing to do with them. Full transparency and disclosure are essential and it is time that the Government acted.

[Lord Bridges of Headley]

My Lords, that was a high-frequency question as far as I can see. The noble Lord raised a number of points. Investment firms that operate what are often termed dark pools are subject to code of business rules that require them to treat their customers fairly. As I mentioned in my opening answer, MiFID II will further introduce strict volume caps on the amount of equities trading that can take place under waivers from transparency. That will significantly reduce such dark trading.