The Securities and Exchange Commission is expected Wednesday to vote on whether to require high-frequency traders to register with the Financial Industry Regulatory Authority, according to a Bloomberg article this morning.
The SEC has been studying this are for more than five years but has so far taken limited action to specifically address the area. In January, the SEC settled several enforcement actions related to HFT firms. One involved an exchange giving information about the operation of their rules selectively to high frequency traders. Another involved the operator of a dark pool allowing traders to place orders in fraction of a penalty increments in violation of Regulation National Market System.
The registration requirement is one of a number being considered by regulators worldwide to address the potential problems caused by high frequency trading (HFT) firms. The European Securities and Markets Authority wants to synchronize the clocks of HFT venues and introduce more detailed time-stamps to allow regulators to better evaluate whether market manipulation is happening. Better timing could help regulators determine whether HFT firms are engaged in front-running of large trades.
HTG Capital Partners filed a lawsuit last week against unknown rival firms for spoofing taking place in the U.S. Treasury Bond Futures. Last year, it asked CME to sanction its rival Allston Trading for similar spoofing.
The SEC has been criticized for inaction so far in this area. The popular book on the subject, Michael Lewis’ Flash Boys, was published last March. Since publication, there has been alot of attention but few additional regulatory moves specific to the industry.