Section 9(i) of the Exchange Act, added by the Market Reform
Act, authorized the SEC to limit or prohibit practices which result in
extraordinary levels of volatility. While
originally designed to give the Commission the ability to curtail
program trading, reasoned Rep. Markey, Section 9(i) could also be used to
restrict or ban high frequency trading. If the SEC makes a finding that the
financial markets are currently in a period of extraordinary volatility and
that high frequency trading is reasonably certain to engender such levels of
volatility, emphasized Rep. Markey, the Commission could immediately promulgate
rules restricting or eliminating the practice.
Further, given that numerous commenters have already pointed
out that the level of market volatility is at historically high levels and that
high frequency trading augments that volatility, both of these findings could
be made very easily. In his capacity as Chair of the House Telecommunications
and Finance Subcommittee, Rep. Markey authored the provisions of the Market
Reform Act that authorized the Commission to crack down on program trading.
More broadly, Rep. Markey said that high frequency trading
has established bifurcation in the markets in that well-financed and sophisticated
trading firms make full use of light-speed high frequency trading algorithms
while ordinary investors remain at more terrestrial speeds. Ordinary investors
are increasingly citing high frequency trading as evidence that markets are a
rigged game where large firms with a high-speed
supercomputing terminal can always outperform ordinary investors.