The growth of high-frequency trading is beginning to catch the attention of federal regulators at the Securities and Exchange Commission as criticism mounts that the U.S. is far behind the curve when it comes to monitoring and regulating a computer trading industry that has added threatening levels of volatility to financial markets.
That explosion has caught the attention of leaders in the financial industry too, after high-frequency trading caused multiple “flash crashes” that sent stocks plummeting. The growth of high-speed trading, as well as the potential damage it can cause, is “terrifying,” one chief executive told the Wall Street Journal:
“It’s terrifying,” said Mark Gorton, chief executive of Tower Research Capital LLC, which is among the biggest high-frequency trading businesses in the U.S. Tower uses complex computer programs to trade stocks, currencies and other securities at speeds measured in fractions of a second. Such firms have come to account for the majority of trades in the U.S. stock market and are expanding in trading of foreign currencies, commodities and fixed income.
“Everyone’s sitting there saying, ‘This could happen to me’ ” said Mr. Gorton.
Gorton isn’t the only person within the industry to express concern. Last month, one of high-frequency trading’s pioneers said that the current explosion contains “absolutely no social value.” It’s been two years since officials at the Federal Reserve Bank of Chicago warned regulators that high-speed trading was becoming increasingly dangerous.
Other countries, like Germany, have moved to curb high-speed trading, and lawmakers in the U.S. have proposed a financial transactions tax that would limit the number of computer trades by making them more costly. The SEC, though, is only “planning to catch up” with other countries, and it held meetings in Washington today to assess how it could better regulate the practice.