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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Could Labour lose the Oldham by-election?

Sources warn defeat is not unthinkable but the party's ground campaign believe they will hold on. 

As shadow cabinet members argue in public over Labour's position on Syria and John McDonnell defends his Mao moment, it has been easy to forget that the party next week faces its first election test since Jeremy Corbyn became leader. On paper, Oldham West and Royton should be a straightforward win. Michael Meacher, whose death last month triggered the by-election, held the seat with a majority of 14,738 just seven months ago. The party opted for an early pre-Christmas poll, giving second-placed Ukip less time to gain momentum, and selected the respected Oldham council leader Jim McMahon as its candidate. 

But in recent weeks Labour sources have become ever more anxious. Shadow cabinet members returning from campaigning report that Corbyn has gone down "very badly" with voters, with his original comments on shoot-to-kill particularly toxic. Most MPs expect the party's majority to lie within the 1,000-2,000 range. But one insider told me that the party's majority would likely fall into the hundreds ("I'd be thrilled with 2,000") and warned that defeat was far from unthinkable. The fear is that low turnout and defections to Ukip could allow the Farageists to sneak a win. MPs are further troubled by the likelihood that the contest will take place on the same day as the Syria vote (Thursday), which will badly divide Labour. 

The party's ground campaign, however, "aren't in panic mode", I'm told, with data showing them on course to hold the seat with a sharply reduced majority. As Tim noted in his recent report from the seat, unlike Heywood and Middleton, where Ukip finished just 617 votes behind Labour in a 2014 by-election, Oldham has a significant Asian population (accounting for 26.5 per cent of the total), which is largely hostile to Ukip and likely to remain loyal to Labour. 

Expectations are now so low that a win alone will be celebrated. But expect Corbyn's opponents to point out that working class Ukip voters were among the groups the Labour leader was supposed to attract. They are likely to credit McMahon with the victory and argue that the party held the seat in spite of Corbyn, rather than because of him. Ukip have sought to turn the contest into a referendum on the Labour leader's patriotism but McMahon replied: "My grandfather served in the army, my father and my partner’s fathers were in the Territorial Army. I raised money to restore my local cenotaph. On 18 December I will be going with pride to London to collect my OBE from the Queen and bring it back to Oldham as a local boy done good. If they want to pick a fight on patriotism, bring it on."  "If we had any other candidate we'd have been in enormous trouble," one shadow minister concluded. 

Of Corbyn, who cancelled a visit to the seat today, one source said: "I don't think Jeremy himself spends any time thinking about it, he doesn't think that electoral outcomes at this stage touch him somehow."  

George Eaton is political editor of the New Statesman.