Campaign contributions by high-frequency trading firms have skyrocketed 673 percent since 2008, according to a new report focusing on 48 companies. These traders contributed $16.1 million during the 2012 election cycle, up from just $2.1 million in 2008. That’s not including the 93 percent spike in funds spent on lobbying Congress, the Securities and Exchange Commission, and the Commodity Futures Trading Commission since the recession.
The biggest single-year jump in spending occurred between 2009 and 2010, as traders attempted to kill the beefed up regulations in the Dodd-Frank Wall Street Reform Act. While the law cracked down on risky trading by banks, it only mentioned high-frequency trading once, and left hedge funds and trading firms largely unregulated.
The report details how high-speed traders successfully ducked the bulk of Dodd-Frank’s regulations after the financial crisis:
“Unsurprisingly, high frequency traders upped their campaign contributions and lobbying spending at the same time Congress was debating a new law to crack down on the excesses of Wall Street,” said CREW Executive Director Melanie Sloan. “Despite all of the new regulations put forth in Dodd-Frank, these firms managed to come away unscathed. If lobbying and campaign contributions don’t directly buy influence in Washington, they certainly don’t hurt.”
Unregulated high-speed trading, which prioritizes quick profits without the burden of investment, renders the market extremely volatile and subject to major fluctuations. So-called “flash crashes,” like the Dow’s 1,000-point plunge in 2010 caused by an automated high-speed trading program, expose the risk these trades pose to the entire economy. Despite the lack of greater economic benefit, high-frequency trading has come to dominate the stock market since the financial crisis.
In response to the 2010 flash crash, the SEC approved a plan to limit high-speed trading in the event of major price swings. The agency is planning to further tighten regulations on the industry, while lawmakers may also consider a financial transactions tax to make such trades more costly.