Bloomberg News

Borsa Italiana Plans Charges to Deter Excessive Trading Orders

February 20, 2012

Feb. 20 (Bloomberg) -- Borsa Italiana SpA, owned by London Stock Exchange Group Plc, will probably introduce charges to discourage traders from sending excessive orders, as European regulators grapple with high-frequency trading.

The Italian stock exchange, based in Milan, will outline the new tariffs this month as it attempts to deter companies from sending large numbers of orders that fail to result in trades, according to a person familiar with the situation.

Regulators worldwide are studying high-frequency trading and its impact on markets. Computerized trading isn’t spurring broad increases in market volatility even though it sometimes creates “instability” that may lead to crashes, a U.K. government study said in September.

The role of high-frequency firms in periods of market swings has come under scrutiny since the May 6, 2010, crash that briefly erased $862 billion from the value of U.S. shares. Traders and other professional investors were said to have withdrawn bids as the selloff worsened, according to a Sept. 30 report from the Securities and Exchange Commission and Commodity Futures Trading Commission. Regulators and exchanges later installed curbs to limit the disruption to markets.

High-frequency trading relies on the rapid and automated placement of orders, many of which are immediately updated or canceled, as part of strategies such as market making and statistical arbitrage and tactics based on momentum. Hedge funds, brokerages and trading firms use these techniques as part of investment strategies or to execute orders quickly as prices and available bids and offers change.

Algorithms, or strategies that execute bigger orders by breaking them into smaller pieces and sending them to different exchanges, also typically use high-frequency techniques. Mutual, pension and hedge funds employ algorithms built by brokers or vendors to automate their trading instead of manually placing orders in markets or turning to humans to buy or sell blocks.

Tom Gilbert, a spokesman for LSE, declined to comment today. Borsa Italiana’s plans were earlier reported by the Financial Times.

--Editors: Will Hadfield, Srinivasan Sivabalan

To contact the reporters on this story: Nandini Sukumar in London at nsukumar@bloomberg.net or NandiniSukumar on Twitter

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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