The German government is set to approve a bill in cabinet Wednesday that aims to rein in high-frequency trading, stoking fears that tougher rules could stunt the growth of the sector in Europe.

The legislation, which is expected to be passed later this year by Germany's parliament, targets traders who use computer programs to carry out extremely fast automatic trades, making profits on paper-thin differences in prices and short-term price fluctuations. The growth of high-frequency trading has created a new source of instability in financial markets, which Germany is trying to address with tougher regulation.