Reuters: Regulatory News: Italy watchdog attacks risky financial products

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Italy watchdog attacks risky financial products May 14th 2012, 09:26 MILAN | Mon May 14, 2012 5:26am EDT MILAN May 14 (Reuters) - Authorities must regulate and even ban financial products that can wipe out people's savings, the head of Italian market watchdog Consob said on Monday, days after JP Morgan unveiled a $2 billion trading loss due to a failed hedging strategy. Consob chairman Giuseppe Vegas cited high frequency trading and exchange traded funds as potentially dangerous products and practices whose risks need to be monitored because they can have systemic repercussions. "Financial innovation can be positive, but lawmakers and authorities have a duty to prevent it from becoming a mechanism that destroys the savings of families," Vegas told Italy's financial community at Consob's watchdog annual meeting. Vegas said Consob had already intervened to regulate high frequency trading (HFT), which involves placing and then pulling multiple orders faster than the blink of an eye. Supporters say the practice boosts market liquidity but critics fear it can lead to market abuses and excessive volatility. Consob has been working with other national regulators on further guidelines on the issue, to be adopted by European authorities.

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