European Central Bank policymaker Ewald Nowotny called on Thursday for a regulatory ban on high-frequency trading, saying the technique of using computer algorithms to generate multiple high-speed trades had no practical value.
A day after the European Commission proposed putting the ECB in charge of supervising euro zone banks, Nowotny said it might be better to have clear bans on some financial market activity rather than an approach that leaves banks scope to seek loopholes.
"For example with high-frequency trading there is nothing to be regulated, it is to be banned. There is no really demonstrable net advantage from this (form of trading)," he told a panel discussion at a regulatory conference.
Nowotny, who heads the Austrian National Bank, has no power to implement such a ban, although his comments come at a time when the ECB is being lined up to take a more influential role in supervising banks.
There has been a growing backlash against high-frequency trading, which many manual traders perceive to have an unfair technological advantage. Some blame 'algos' for contributing to sudden crashes in financial markets and for creating a false illusion of market liquidity by entering and withdrawing large orders within milliseconds without necessarily intending to trade on them.
Nowotny had earlier told reporters that putting the ECB in charge of supervising banks in the euro zone was a good idea but the central bank needed the right resources.
"As with any supervisory measure you have to watch out that you actually have the means to fulfil the responsibility. That is the discussion to be held now," he said.
Under a plan proposed by the European Commission on Wednesday, the ECB would take over these responsibilities in stages over a year from January.
However, the plan needs approval by all 27 European Union states and the bloc's biggest economy, Germany, raised immediate objections that the scheme would overload the ECB.
Nowotny said it was clear under the new proposal that national and regional supervisors would de facto remain in charge of supervising smaller lenders.
"I do not see national supervisors becoming superfluous," he said, adding the European Banking Authority's ability to set standards also remained intact.
Nowotny said he would welcome it if countries in central and eastern Europe opted to join the system. "A unified (approach) is an advantage especially for these countries that are so closely interlinked with the rest of Europe," he said.
Some non-euro governments fear the new rules could weaken their banks.
(Reporting by Michael Shields; Editing by Ruth Pitchford)