On February 28, the Bundestag (Germany’s lower house of parliament) approved a bill aimed to prevent the abuse and associated dangers of high frequency trading. The bill requires that high frequency traders obtain authorization, which has been unregulated up to now. It also requires market participants to ensure that they have properly configured trading systems which will not cause market disturbances. Additionally, a fee will be imposed on traders who make excessive use of high frequency trading systems and limits will be introduced in respect to the ratio between abandoned and executed orders.
Bafin (the German regulator) will have responsibility for supervising high frequency trading and will have information and intervention rights under the proposed legislation. In particular, it will have the power to request a description of algorithmic trading patterns and trading parameters, and can prohibit the use of certain algorithmic trading strategies if they violate exchange rules or cause disruption in the markets. Trading strategies which are conducted with the intention of disturbing trading or deceiving the markets will be considered to be market manipulation.
