Monday, December 31, 2012

House Financial Services Committee Likely to Examine High Frequency Trading in 2013

Given that the new Chair of the House Financial Services Committee, Rep. Jeb Hensarling (R-TX) is a longtime leader on the issue of high frequency trading, it is highly likely that the Committee will pursue this issue with hearings and other activities in 2013. In earlier remarks, Rep. Hensarling has noted that a shoot the computers first and ask questions later approach will not restore investor confidence or promote capital formation.

Chairman Hensarling believes that the high frequency trading debate is not a debate about who has access to what technology. Rather, it is a debate about the health, efficiency, and competitiveness of the financial markets. Any action taken by Congress or the SEC should be based on economic and empirical data, not political pressure.

In 2010, then Senator Edward Kaufman (D-DE) informed the high frequency trading debate with some specific proposalssubmitted to the SEC. The Senator said that high frequency traders who exceed a certain volume threshold should be required to register with the SEC, and then subjected to automatic risk compliance and anti-gaming checks. He also urged the SEC to impose some liquidity provision obligations on high frequency traders. Enhanced requirements should be crafted to encourage high frequency traders to post two-sided markets and supply investors with a consistent source of deep liquidity. In addition to affirmative liquidity provision obligations, the Commission should consider instituting negative obligations as well.