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.