High-frequency trading will be investigated by regulators to “better understand any risks,” Europe’s top market watchdog said in a report on proposed industry rules. A planned European Union market regulator should also have the power to set standards for the tools used by high-frequency traders, such as the practice of placing computer servers close to trading venues to speed up market access, the Committee of European Securities Regulators told the European Commission. Powers for the proposed European regulator should keep pace “with new technological advances, increasingly fragmented equity markets” and “shortcomings” in post-trade information, Sally Dewar, managing director at the U.K.’s Financial Services Authority, said in an e-mailed statement today.

The commission, which proposes legislation for the 27- nation EU, is reviewing a directive that governs trading across the region. Paris-based CESR will take on additional powers at the start of next year when it becomes the European Securities and Markets Authority. High-frequency trading entails hedge funds and other firms using powerful computers to execute orders in milliseconds to profit from tiny discrepancies in the prices of shares. CESR also said Europe should develop a so-called consolidated tape, a pricing mechanism for securities that combines prices from multiple trading venues. The U.S. uses a consolidated tape to price securities. “Concrete steps” should be taken to set up a consolidated tape “in the very short-term as we remain convinced of its necessity,” CESR Chairman Eddy Wymeersch said in the statement.

Courtesy & From :bloomberg.com