Financial transaction tax may curb high-frequency trading, say MPs

A TAX on financial transactions linked to the average profit on high-frequency trades is being considered by MPs, according to a report produced by the Business, Innovation and Skills Select Committee.

Part of the plans put forward in the report includes a requirement for asset managers to spend a specified part of their commission on long-term investment research.

While MPs acknowledge there are potential impracticalities in introducing the measures, they harbour hopes the move will put a stop to what they consider “poor practices” such as algorithm trading.

The recommendations came in an update to the government’s Kay Review, originally published a year ago after being commissioned by business secretary Vince Cable (pictured) with the aim of making equity markets target long-term performance over short-term profits.

“High Frequency Trading (HFT) is often cited as an example how technological progress has been damaging rather than beneficial to the economy and there have been several attempts to analyse its impact on markets,” the report read.

It added: “We recommend that the government considers the viability, benefits and risks of a financial transaction tax.”

For its part, the accounting watchdog the FRC said it was pleased with the review’s overall recommendations on governance – which included removing the mandate for quarterly reporting.

In a statement, it said: “In particular, we welcome the emphasis placed in the report on the resourcing of stewardship activities, and the commitment from the Parliamentary Contributory Pension Fund that they intend to become a signatory to the UK Stewardship Code.

“The FRC welcomes the recognition the [report] has brought to the concept of stewardship, and we are pleased the committee continues to focus on the importance of investor engagement.”