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Are New Rules Needed For High-Speed Stock Trading?

Sep 21, 2012
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RENEE MONTAGNE, HOST:

NPR's business news starts with high-frequency trading.

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MONTAGNE: On Capitol Hill, some members of Congress are asking if there's a need for new rules to regulate high-speed trading in the stock market.

As NPR's Wendy Kaufman reports, one influential U.S. senator says recent events suggest it's worth looking into.

WENDY KAUFMAN, BYLINE: Democratic Senator Jack Reed told a conference of traders that policymakers should be concerned about whether the vast amount of computerized trading gives some investors an unfair advantage, and whether it increases the risk of a market crash.

The chairman of the Subcommittee on Securities and Investment cited the botched handling of Facebook's IPO, and a software problem that cost Knight Capital hundreds of millions of dollars and roiled the markets. Reed took those concerns to a hearing he chaired later in the day.

Andrew Brooks - head of U.S. equity trading at T. Rowe Price - told Reed, there is a growing distrust about the market.

ANDREW BROOKS: You know, we have a group of terrific, dedicated traders every day trying to find fairness in the marketplace for our investors, and they don't feel so good about things. Things are moving on us. People are taking advantage. There's opportunity being taken away from investors. And that - it's the worst I've ever seen in my career.

KAUFMAN: In a hearing, punctuated with phrases like adverse selection, quote stuffing and kill switches, the senators heard about a highly complex and fragmented trading system that critics say is vulnerable to volatility and manipulation and gives some traders information ahead of others, and seems to give some orders preferential treatment.

So what, if anything, should be done? Larry Tabb, CEO of the Tabb Group, cautioned officials to first do no harm.

LARRY TABB: The U.S. markets are the deepest and most liquid on the globe, so first, do nothing radical.

KAUFMAN: But David Lauer - a former high-frequency trader himself - suggests the market is moving too fast, and should be slowed down. And he says regulators who are often outgunned should get more creative in how they approach enforcement.

The Securities and Exchange Commission will be holding a roundtable on some of these very issues next month.

Wendy Kaufman, NPR News. Transcript provided by NPR, Copyright NPR.