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UK 'black box' trading crackdown due

Holly Williams

October 22, 2012 9:47am

THE British government is set to crack down on so-called "black box" trading to prevent extreme swings in share prices.


Business Secretary Vince Cable is expected to call for better management and oversight of high-speed computer trading in response to the publication of a report due on Monday, according to The Sunday Telegraph.

Professor John Beddington's report, called The Future of Computer Trading in Financial Markets, is set to reveal there are regulatory holes surrounding electronic financial trading and will recommend these loopholes are closed to protect markets and investors.

"Black box", or high frequency, trading - developed in recent years due to technological advances - has been blamed for high volatility in equity prices in recent years.

It was said to have wiped more than STG300 billion ($A460 billion) off the value of UK shares over six weeks last summer.

More than one third of UK equity trading is now generated through high frequency trading, while in the US it is closer to three quarters.

Beddington, the government's chief scientific adviser, has been leading the report into the impact of high speed trading on markets, heading a panel including former London Stock Exchange chief executive Clara Furse and Andy Haldane, director of financial stability at the Bank of England.

There are concerns the Bank of England and Financial Services Authority are not able to police such advanced technology.

Beddington's report will look at how computer generated trading - also known as algorithmic trading - might develop in the next 10 years or more and how this will affect financial stability and the integrity of markets.