Department for Business

BIS Report on the Future of Computer Trading in Financial Markets

Posted on

On October 23, the Department for Business, Innovation and Skills published a report entitled ‘The Future of Computer Trading in Financial Markets – An International Perspective’.  The report is an analysis of the potential benefits and risks of algorithm driven high-frequency trading, with a discussion of regulatory priorities for the future.  The report finds that computer-based trading improves liquidity, reduces transaction costs and ensures that market prices are more efficient.  In addition, the report found no direct evidence that high-frequency trading has increased either market volatility or market abuse.

 However, the report did find that in specific circumstances, computer-based trading can lead to market instability and periodic illiquidity, and suggested that to address this policy-makers should consider the following priorities:

  • Immediate evidence-based regulatory action at the European level to assess and introduce ways to manage the adverse side-effects of computer-based trading and incentivise accident-avoiding practices and behaviour.
  • The implementation of accurate, high resolution, synchronised timestamps as a key means for assisting analysis of financial markets.
  • The development of software for automated forensic analysis of adverse/extreme market events.

UK Government White Paper on Banking Reform

Posted on

On 14 June 2012, HM Treasury and the Department for Business, Innovation and Skills (BIS) published a white paper on banking reform setting out the government’s proposals for implementing the key recommendations of the Independent Commission on Banking (ICB) chaired by Sir John Vickers. White Paper.

Key proposals of the White Paper are:

• Retail banking operations will be ring-fenced, with operations core to consumer and small business services separated from investment banking.

• Those ring-fenced operations will face limits on exposures to other banks – they will only be allowed to carry out tasks like facilitating other institutions’ payments and managing liquidity.

• The biggest banks will hold 17% of risk-weighted assets as primary loss-absorbing capital.

• Bail-in bonds will be used to make creditors cover some of the cost of a bank failing, without a full collapse.

• But depositors will still be protected and will have a senior claim to bondholders, as well as a legal guarantee on deposits up to £85,000.

• Banks must comply with Basel III’s 3% tier one leverage ratio.

The deadline for responses to the White Paper is 6 September 2012 with the Government due to publish a draft bill in the autumn. The Government states in the white paper that it is committed to completing all primary and secondary legislation by the end of this Parliament in May 2015. The deadline for banks to comply with all of the ICB recommendations is 2019.