Yet again, the UK government has sided with the robotraders on a Robin Hood Tax

A financial transactions tax is the most economically efficient way to lessen the harm of HFT – but the government keeps fighting it.

Fifteen years ago the computer program Deep Blue made headlines around the world by beating chess giant Garry Kasparov. In the years since, computer algorithms have quietly gone on to dominate large parts of the financial markets.

Computer-driven trading now accounts for 70 per cent of trading in the US equity market, 36 per cent in the UK. Machines fire tens of thousands of trades a second, relying on state-of-the art technology and proximity to stock exchanges to shave microseconds off transaction times.

Yet tiny errors in the algorithms can have devastating consequences. During the infamous 'Flash Crash' of 2010 the Dow Jones index dropped nine per cent in a matter of minutes. Over the summer Knight Capital – a leading New York HFT (high frequency trading) firm – erroneously swamped the stock market with errant trades, wiping $440m from the firm's value.

That's why the European Parliament's powerful Economic Affairs Committee this week voted through legislation – the Markets in Financial Instruments Directive II – designed to curb HFT. A key proposal being that trades will have to be posted for at least 500 milliseconds (currently traders can execute 10,000 trades during the same period).

Proponents of HFT argue their churning sea of trades brings liquidity to the markets. The reality is more capricious - in times of crisis traders pull the plug, draining liquidity when it is needed most.

Adair Turner described such corners of financial markets as "socially useless". The Financial Times recently said “hard evidence and common sense point to a host of social benefits from removing unnecessary intermediation and curbing predatory trading strategies”, adding that in some areas Mifid II was simply too mild.

It's no surprise that high frequency traders themselves have mounted a defence against the reforms. What's of more concern is that in the days preceding the vote the UK Government lobbied for them to be watered-down. Its official response did not support the call for HFT firms to hold equities for a minimum period.

Yet as the Bureau for Investigative Journalism revealed last week, of a 31-member panel tasked by the UK Government to assess Mifid II, 22 members were from the financial services, 16 linked to the HFT industry. A study by the Bureau last year revealed that over half the funding for the Conservative Party came from the financial sector, 27 per cent coming from hedge funds, financiers and private equity firms. This perhaps helps explain how the interests of a select group of traders get confused with the interests of the economy as a whole.

It's a similar story for the Financial Transaction Tax. No longer a pipe dream, European Governments of all political hues, including its largest economies, are working towards its implementation by next year. The tax of between 0.1 - 0.01 per cent on financial transactions offers a more effective mechanism to limit market excesses by making certain speculative trades less profitable. But crucially, it is also capable of raising billions in much needed revenue that would ensure the financial sector pays it fair share for the damage caused to our economy.

Yet the UK Government has again chosen to stand apart in blocking a Europe wide-FTT, turning down billions in desperately needed revenue that could help save jobs, protect the poorest and avoid the worst in cuts to public services. Instead, advice of previous Party Treasurers Michael Spencer and Peter Cruddas was heeded, who infamously lobbied against the FTT. Both incidentally own multi-million pound financial firms which would be hit by such a tax.

Taken together, this tells the story of a post-financial crisis Europe: as governments embark on the arduous task of making markets once again work in the interests of society, the UK Government remains intoxicated by the Square Mile - protecting vested interests and relying on the same market principles that got us into this mess to get us out again. Best brace ourselves for a bumpy ride.

The EU Parliament. Photograph: Getty Images

Simon Chouffot is a spokesperson for the Robin Hood Tax campaign and writes on the role of the financial sector in our society.

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Commons Confidential: Gaffe-tastic Johnson, a missing Osborne, and a bit of May-hem

Plus rumours that Sir Keir “Call Me Mr” Starmer will throw his flat cap into the next Labour Party leadership contest.

Unlike Theresa May, the gaffe-tastic Boris Johnson is sackable. The blond bumbler did himself no favours by upsetting British Sikhs with his gurdwara “clinky” booze talk in a mock Indian accent, or foreshadowing the social care switch before his Downing Street line manager executed the humiliating manifesto manoeuvre.

May-hem’s position is assured as Prime Minister should the Tories win the election, but not so Johnson’s as Foreign Secretary. I hear that Johnson, too often the cause of chaos in the Conservative Party coalition, has made a dangerous enemy in Team May. Nick Timothy, May’s joint chief of staff, is said to be agitating for BoJo to be reshuffled ahead of the Brexit negotiations. Tick-tock.

Unless he has slipped into the building under cover of night, George Osborne hasn’t been seen at BlackRock’s London HQ since signing a £650,000 contract earlier this year, whispers my snout. Perhaps the former Tory chancellor is too busy, work on the London Evening Standard free sheet leaving an editor training on the job looking distinctly jaded. With BlackRock’s speculators nervous about divulging secrets to a budding journalist, the rapacious New York-based capitalist citadel would be forgiven if it wondered whether Boy George is value for money.

He is the son of a toolmaker and a nurse and is named after the Labour socialist Keir Hardie, and his energetic election campaign is fuelling speculation that Sir Keir “Call Me Mr” Starmer will throw his flat cap into the next party leadership contest. A Unite trade union fan of Starmer (yes, they exist) insisted that Camden doesn’t carry the negative Islington baggage of the incumbent. (Starmer represents Holborn and St Pancras, a leaflet’s throw from Corbyn’s constituency.) It may also help that Starmer has fallen out with Peter Mandelson, mastermind of the Blairite counter-revolution. The Prince of Darkness angrily judges the shadow Brexit secretary to be insufficiently Euroenthusiastic. If only the electorate felt the same.

Labour’s deputy and Unite old boy, Tom Watson, has joined the GMB trade union. Sounds like a smart insurance policy when he’s fallen out badly with Len McCluskey. Everybody needs employment protection.

No gushing One Show party political broadcasts for Labour. Jeremy Corbyn and his wife, Laura Alvarez, are declining to follow Theresa and Philip May in discussing boy and girl jobs on BBC1. Corbyn is fiercely protective of his family’s privacy. The other reason, I’m told, is a fear that the Mexican Alvarez’s slight Spanish lilt might reinforce suspicions among some of Labour’s more old-school supporters that he’s a member of the London metropolitan elite.

Kevin Maguire is Associate Editor (Politics) on the Daily Mirror and author of our Commons Confidential column on the high politics and low life in Westminster. An award-winning journalist, he is in frequent demand on television and radio and co-authored a book on great parliamentary scandals. He was formerly Chief Reporter on the Guardian and Labour Correspondent on the Daily Telegraph.

This article first appeared in the 25 May 2017 issue of the New Statesman, Why Islamic State targets Britain

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