Commentaries

Schumer aka Flash Gordon

There’s an old joke in New York that the most dangerous place is the space between a TV camera and Sen. Chuck Schumer. And the New York Democrat’s love of the limelight certainly was on display late last week with regards to the increasingly controversial subject of high frequency trading.

Schumer’s staff didn’t waste time on Friday in announcing that the senator had sent a letter to the Securities and Exchange Commission, asking regulators to study some aspects of highly-automated stock and commodity trading.

Now rapid-fire trading, fueled by sophisticated computer programs, isn’t the kind of thing that naturally catches the attention of US senators. In all likelihood Schumer sent his letter to the SEC after reading a page one story in The New York Times, which focused on some of the concerns about HFT.

The Times story was a good one. Of course, I have to note  that the folks at Zerohedge have been writing about potential problems with HFT for a long, long time. And we at Reuters have aggressively covered the topic ever since we broke the news that Sergey Aleynikov was criminally charged with trying to steal some of the top secret compute code to Goldman Sachs’ proprietary HFT program.

But it was the Times story that got Schumer’s attention and I’m glad it did. After all, a few days earlier I wrote a column calling on the SEC to begin an investigation into allegations that this type of automated, lightening fast trading could play havoc with the markets.

Yet this is what troubles me about Schumer’s request: it focused almost exclusively on the issue of so-called flash trades. Schumer’s letter to the SEC didn’t touch on potentially bigger issues like the possibility of a few HFT players coming to dominate trading.

The letter also didn’t focus on the potential for a rogue mathematical formula manipulating trading in a stock or a commodity. Nor did Schumer address the issue of a misfiring algo accidentally sparking a massive market sell-off in a stock.