MacroScope

SEC has power to ban high-frequency trading, congressman says

January 18, 2013

Not everyone agrees that using high-speed machines to trade stocks in less time than it takes the average person to blink is a bad thing, but the people who do might be heartened by the letter a congressman sent the U.S. Securities and Exchange Commission on Friday.

Rep. Edward Markey, a Massachusetts Democrat who has waged a decades-long struggle against computerized trading sent the SEC a hint: The power to curb high-frequency trading has been within its grasp all along.

In his letter, Markey described a law he co-sponsored in 1989 to increase the agency’s power to regulate computerized trading, a precursor to HFT that employed computer programs to make trading decisions without the participation of conscious humans. The law lets the SEC “limit practices which result in extraordinary levels of volatility,” according to Markey’s citation.

Markey, nudging further, added: “If the commission simply makes a finding that the markets are currently in a period of extraordinary market volatility and that HFT is reasonably certain to engender such levels of volatility, the Commission can immediately promulgate rules that restrict or eliminate the practice.”

Do current market conditions warrant this? HFT proponents say high-speed trading reduces volatility in liquid stocks. Volatility in the stock market is the lowest it has been since 2007. But incidents like the May 2010 flash crash, a head-spinning plunge in the stock market precipitated by computers, or the glitch that nearly brought down Knight Capital last summer, could count as their own sort of volatility.

All Markey can do at this point is nudge the SEC. He doesn’t sit on the House Financial Services Committee, so he can’t pester acting Chairwoman Elisse Walter to take his advice. But things could change soon: Markey announced in December he would run in the special election this year to replace Sen. John Kerry, who is leaving the Senate to become Secretary of State.

For that reason alone, Walter may want to give the letter some thought. A helpful hint now could turn into a stronger suggestion in a few months.

Comments
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The problem with HFT is the simple fact that exchanges promoted their advance on the grounds of “promised ” volume and liquidity and therefore spent vast sums on colocation ; sadly their biggest clients rely on HFT to boost their profits and regulators are unwilling to spill the profit cart .
Finally as HFT recedes we are now face with a bigger problem “dark pools ” ! Who ever thought that this was legal should be taken for therapy ;;; The question I ask is can regulators regulate ?

Posted by neilcrammond | Report as abusive
 

This and other topics that are relevant for speed traders and institutional investors will be discussed at High-Frequency Trading Leaders Forum 2013 London, next Thursday March 21.

Posted by EllieKim | Report as abusive
 

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