UK Treasury to investigate high-frequency trading practices, news report reveals

30 September 2010

The UK Treasury is to launch a probe into practices surrounding high-frequency trading, the Financial Times has revealed.

According to the newspaper, the investigation has been set up to assess what impact a computer-generated error made via these trades would have on the economy as a whole.

High-frequency trades are currently the subject of regulatory scrutiny in the US following the ‘flash crash’, which occurred on the Dow Jones Industrial Index earlier in the year.

The index fell by approximately 1,000 points in less than 20 minutes and a report into the reasons behind the crash is expected to be released by the Securities and Exchange Commission over the coming weeks.

In an email from within the Treasury, which the FT gained access to, the department said: “This ‘flash crash’ exposed the vulnerability of high-frequency algorithmic trading, which was a contributory factor to the decline in confidence that is still being felt across markets.”

It added: “The possibility remains of a computer-generated trading failure occurring in the UK and having a significant economic impact.”

The Treasury’s report is expected to focus on the use of algorithms which enable traders to rapidly buy and sell a wide range of shares and derivatives.

Lucas Pedace of the government Office for Science is due to lead the report.

By Jim Ottewill

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