Lord Myners has called on the Government to launch a focused inquiry into so-called "black box" computerised trading in the wake of extreme volatility in the UK's biggest companies.
10:00PM BST 13 Aug 2011
15 CommentsThe former City minister said that high-frequency trading also known as black box trading had been a "contributing factor" in the harsh swings which have led to more than £300bn being wiped off the value of British shares since the beginning of July.
He wants both the Treasury and the Financial Services Authority (FSA), the City regulator, to investigate thoroughly the phenomenon and the impact it has.
High-frequency trading (HFT), which accounts for as much as 50pc of trading in London, has been blamed for exacerbating intra-day swings and putting ordinary investors at a disadvantage due to the speed with which such trades are placed in the market.
Lord Myners, the former fund manager, also called for European banks, which have been at the centre of the storm, to be more honest to investors and increase levels of disclosure of the sovereign debt they are holding.
His calls on disclosure were echoed by Georges Pauget, an adviser to the French government, who said banks must be more open with investors if they are to end the market fears that have led their share prices to collapse in recent weeks. The comments from the two men come after a wild week in global stock markets.
The nadir came last Wednesday, when investors moved strongly against Societe Generale, France's largest bank, forcing its shares down as much as 20pc. As a result, European regulators chose to ban shorting on banks in France and three other countries.
But Lord Myners said that rather than shorting – which he said was not a contributing factor in falling bank shares – there was a "greater need to address" such trading methods.
"High-frequency trading appears so detached from the true function of capital markets, but is potentially fraught with hazard. It definitely deserves more attention than either the FSA or the Treasury has given it."
Lord Myners has tabled a series of questions in the House of Lords on the subject. Lord Sassoon, commercial secretary to the Treasury, said last week in a written answer that the Government's two-year study into the "Future of Computer Trading in Financial Markets", would not report until autumn 2012.
Andy Haldane, the Bank of England's executive director for financial stability, last month warned now may be the time to set a "speed limit" on market trades to tackle the dangers posed by so-called "flash trading" by high-speed computers.
Larry Tabb, founder of financial market research house Tabb Group, said although HFT was not directly to blame, it was indirectly to blame for removing large swathes of liquidity from the market, meaning that when sizeable sell orders are made, prices drop further than they might have done.
Lord Myners' calls for wider disclosure were echoed by Mr Pauget, the former chief executive of Credit Agricole, who said banks should move quickly to give better disclosure of their funding positions to reassure the markets they are well-financed.
"They have to provide more information. Banks have to give more information on liquidity," said Mr Pauget. He went on to say there was a growing need for all banks to give more details of their net stable funding ratios, which show the proportion of a bank's assets that are financed with longer-maturity debt.
His comments come amid concern that the UK's largest banks are on a collision course with the FSA over the need for more detailed disclosure of the amount and type of sovereign debt each is holding.
