Foreign exchange platform puts the brakes on high-frequency traders

EBS has changed its rules to discourage algobots.

EBS, a major interbank trading platform in in the foreign exchange market, is considering imposing a major change in the way it runs its market in order to discourage high-frequency trading from taking place.

EBS currently runs on the principle of "first in, first out" trading, where trades are dealt with in the exact order they are made. That is the way most people expect the market to work – but it also gives an advantage to those who can get their trades in quickest. That leads to the arms race that high-frequency trading has seen in the last few years, where traders pay to place their servers close to the exchange, to whittle off those last few microseconds.

Instead of this model, EBS is considering bundling together incoming trades and dealing with them in a random order. That way, every trade that came in in (for example) the tenth of a second between 12:00:00.0 and 12:00:00.1 would be grouped together and dealt in a random order, removing the advantage that the trader who got in at 12:00:00.01 would normally have.

Speaking to the FT, the chief executive of EBS explained why the company has made the decision:

The first twenty years of algorithmic trading have added great transparency and led to the compression of spreads – all great things. But there is a line beyond which marginal speed and smaller trade sizes add no value and actually harm the markets. At some point we, the public markets across asset classes, crossed that line.

The ‘first in, first out’ model sounds fair and plausible, but in modern public markets it implies ‘winner takes all’.

The classic example of how high(er)-frequency trading can have positive effects comes from the fact that the desire to shave seconds off the response time to financial information is the reason why the undersea cables linking London to New York are so high quality. Without that motivation to profit, the cables might not have been laid for decades after, and certainly wouldn't be as fast as they are now. (In fact, the USD/GBP exchange rate is still known as "cable" now, after the first transatlantic cable laid in 1858).

But as the speed of trades has increased ever higher, the side-benefits are shrinking. The difference in liquidity between a market where a tenth of a second and a thousandth of a second matters is minuscule; even if spreads might be a tiny bit tighter than they otherwise would be, no normal trader is helped by that "improvement".

So EBS's speed limit is a welcome step. By dealing with trades in a semi-random order, it removes the incentive to spend millions on shaving off the smallest fractions of time. Ironically, the companies which will benefit most in the short term are the high-frequency traders themselves, who already have the technology to trade speedily, and now don't need to worry about investing more on ever-diminishing returns. But eventually, more and more traders will match that capability, until the market becomes a level playing field again.

The other reason why traders – even high-speed ones – ought to thank EBS is that if the exchanges get HFT under control, then there's one less reason for governments to step in. Discouraging high-frequency trades is one of the strongest reasons for introducing a financial transaction tax. That hits everyone, not just the speedy traders.

A new data-centre in Manhattan. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Does the UK care enough about climate change to admit it is part of the problem?

The government’s energy policies make can make it hard to decipher its commitment to emissions reduction.

“People tell me it’s ridiculous to be flying for a climate change project but you have to get real with it, I mean I can’t cycle across the Southern ocean,” says Daniel Price, an environmental scientist from London. As founder of Pole-to-Paris, Price is about to complete a 17,000km bike ride from the Antarctic to the Arc de Triomphe.

Price came up with the idea in an effort to raise public awareness of COP21, the UN Climate Change Conference taking place in Paris next week. During the trip he’s faced a succession of set-backs: from the discovery that boats were prohibitively expensive, to diplomatic tensions scuppering his Russian visa plans. Yet the darkest moments were when he became overwhelmed by the magnitude of his own mission. “There were difficult times when I just thought, ‘What is the point of this’?” he says. “Cycling round the world is nowhere near enough to engage people.” 

As world leaders descend on Paris, many questions remain unanswered. Not least how much support developing nations will receive in tackling the effects of climate change. New research commissioned by Oxfam claims that such costs could rise to £1.7tn a year by 2050. But with cuts kicking in at home, the need to deliver “climate justice” abroad feels like a bigger ask than ever.

So does Britain really care enough about climate change to accept its full part in this burden? The government’s energy policies make can make it hard to decipher its commitment to emissions reduction. In September, however, it did pledge £5.8bn from the foreign aid fund to helping poorer nations combat climate change (twice that promised by China and the United States). And there’s evidence to suggest that we, as a public, may also care more than we think.

In America attitudes are much darker; in the dismissive words of Donald Trump “It’s called the weather”. Not least since, as a recent study proves, over the last twenty years corporations have systematically spread scepticism about the science. “The contrarian efforts have been so effective," says the author Justin Farrell, a Yale sociologist, "that they have made it difficult for ordinary Americans to even know who to trust.” 

And what about in China, the earth's biggest polluter? Single-party rule and the resulting lack of public discussion would seem to be favouring action on the environment. The government has recently promised to reach "peak" emissions by 2030, to quadruple solar installations, and to commit $3.1bn to help low-income countries adapt to the changing world. Christiana Figueres, the UN’s chief climate official, has even lauded the country for taking “undisputed leadership” on climate change mitigation.

Yet this surge of policy could mask the most troubling reality of all: that, when it comes to climate change, the Chinese are the least concerned citizenship in the world. Only 18 per cent of Chinese see the issue as a very serious problem, down 23 percentage points from five years ago, and 36 points behind the global median.

A new study by political economist Dr Alex Lo has concluded that the country’s reduced political debate could be to blame for the lack of concern. “In China popular environmentalism is biased towards immediate environmental threats”, such as desertification and pollution, Lo writes, “giving little impetus to a morally driven climate change movement”.

For the international community, all is well and good as long as the Chinese government continues along its current trajectory. But without an engaged public to hold it to account there’s always a chance its promises may fade into thin air.

So perhaps the UK’s tendency to moan about how hard it is to care about the (seemingly) remote impacts of climate change isn’t all bad. At least we know it is something worth moaning about. And perhaps we care more than we let on to each other.

Statistics published this summer by the Department of Energy and Climate Change reveal that three quarters of the British public support subsidies for renewable energy, despite only 10 per cent thinking that the figure is that high. “Even if the public think the consensus is not there, there are encouraging signs that it is,” says Liz Callegari, Head of Campaigns at WWF. “Concern for climate change is growing.”

As Price puts it, “You can think of climate change as this kind of marathon effort that we have to address and in Paris we just have to get people walking across the start line together”. Maybe then we will all be ready to run.

India Bourke is the New Statesman's editorial assistant.