New High-Frequency Trading Regulations Underway

On Thursday, June 5, 2014 Mary Jo White, SEC Chair, announced plans to regulate high-frequency trading.  At a New York City conference, she said, “The SEC should not roll back the technology clock, but we are assessing the extent to which specific elements of the computer-driven trading environment may be working against investors rather than for them.”  The SEC aims to promote market stability and fairness.

The SEC is expected to propose rules that could:

  • Require high-frequency traders to become registered brokers, thus allowing for more regulatory control.
  • Restrict high-frequency traders from executing short-term strategies that disrupt markets via an “anti-disruptive trading rule.”
  • Require firms to better manage the behavior of their algorithms to comply with regulations

Furthermore, the SEC will work with stock exchanges to fix data feed speed and quality discrepancies between slower, public data feeds used by small traders and faster, proprietary data feeds used by high-frequency traders.  This comes as a result of last August’s Nasdaq public data feed failure, which halted trading in Nasdaq-listed stocks.

By working with the Financial Industry Regulatory Authority, the SEC also plans to expand disclosure of dark pools; pseudo-markets where trading occurs away from regulated stock exchanges.

These SEC announcements are the broadest response to concerns over the impact of high-frequency trading on the markets.  These transactions account for the majority of U.S. trading.  Concerns have intensified as a result of the book Flash Boys, which argues the stock market is rigged.  The SEC’s new plans may take months for application, as the plans are likely to be met with opposition, debate, and voting.

Take a look at this video we created using a Radiolab podcast episode:

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