Exclusive Online Only ContentSEC May Issue “Concept Release” on High Frequency Trading
October 28, 2009
The Securities and Exchange Commission is planning to seek public input on the benefits and drawbacks of high frequency trading, possibly by issuing a concept release, says James Brigagliano, co-acting director of the SEC’s division of trading and markets.
A concept release is an SEC request for public comment on securities issues.
Speaking before an October 28 hearing on market structure issues held by the Senate Banking Committee’s subcommittee on securities insurance and investment, Brigagliano said that the SEC is currently examining high frequency trading, a strategy involving a large number of orders and cancellations occurring in a rapid timeframe, often subseconds.
“The Commission recognizes concerns have been raised that high frequency traders have the ability to access markets more quickly through high speed trading algorithms and co-location arrangements,” Brigagliano told the subcommittee. “This ability may allow them to submit or cancel their orders faster than long-term investors, which may result in less favorable trading conditions for these investors.”
This quicker access could also enable high frequency traders to successfully implement “momentum” strategies designed to prompt sharp price movements and then profit from the resulting short-term volatility, he said.
At the same time, Brigagliano added, high frequency trading can also play a constructive role. “Some have argued that high frequency trading played a role in continuing to provide liquidity during the recent market turmoil,” he said. “High frequency trading may also help to reduce market spreads. I expect the Commission would seek the public’s view on the potential benefits and drawbacks…perhaps by issuing a concept release to explore these issues in greater detail.”
