By Huw Jones
LONDON, April 12 (Reuters) - The European Union's plans to curb ultra-fast share trading may be boiled down to more stringent reporting rules, a UK supervisor said on Tuesday.
The "flash crash" on Wall Street last year sent U.S. blue chips briefly into freefall and prompted the EU's executive to outline a plethora of restrictions on high-frequency trading (HFT) which has alarmed the industry.
The European Commission will refine these proposals into a draft law in the summer as part of a wider reform of the bloc's markets in financial instruments (MiFID) trading rules.
EU national regulators like the Financial Services Authority in Britain, Germany's Bafin and the AMF in France are studying the plans for HFT which has grown to account for 40 percent or more of trading volumes on markets like London.
"The general feeling within that group when it comes to standards is that there is definitely an argument for having all participants who are direct members of a trading venue regulated," Tim Rowe, the FSA's manager of trading platforms, told TradeTech, an industry conference.
"This is currently not the case."
Last week U.S. securities regulators unveiled a plan to protect markets from volatile price swings, drawing on lessons from the flash crash.
Ultra-fast trading involves darting in and out of the market thousands of times a second to exploit price differences. Exchanges welcome HFT as a boost to volumes but it is viewed as speculation by some policymakers.
"What isn't particularly popular among the regulatory community is the idea of the more extensive range of requirements such as requiring all HFT firms to become mandatory market makers in securities," Rowe said.
Mandating how many of the orders placed must be executed or setting a minimum time for orders to be available also seem "wrong headed", Rowe said.
There will, however, be more extensive transaction reporting so that regulators can get "under the skin" of a market and find out who is behind a trade, Rowe said.
Another idea is for regulators to sign off on algorithms before they can be used.
"I think just across the board it's a bad idea," Rowe said.
Requirements to test algos in-house and show how they would deal with faults would be better, he said.
Regulators in Europe want to make sure brakes on markets are as fast as the trading technology used on them and the European Securities and Markets Authority, a pan-EU supervisor, will hold meetings with trading venues shortly.
ESMA is asking traders for more information on HFT to shape its guidance to the European Commission by year end and help weed out some of the more onerous proposals aired.
"Hopefully we can pack those back into the box and what would come out of the box in the end would be reasonable and proportionate regulation," Rowe said.