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July 19, 2013

High-Frequency Traders' Safeguards Come Under Scrutiny

A raft of computer glitches that have plagued markets in recent years amid a burst of high-speed trading is sparking a widening crackdown by Wall Street overseers.

Regulators are focusing on the complex computer systems deployed by high-frequency trading firms, with an eye on whether the systems have adequate safeguards against chaotic trading that can destabilize markets and harm investor confidence.

The Financial Industry Regulatory Authority is conducting a probe of high-speed firms’ trading algorithms—the computer formulas that juggle the firms’ rapid-fire trades—and the controls surrounding their trading technology, according to an examination letter sent to about 10 firms this week.

Responses to the letters could prompt additional probes or result in marching orders for the industry to improve risk-management, said Thomas Gira, head of market regulation at Finra. “We’re trying to make sure that firms are aware of how their ‘algos‘ are constructed and how they’re operating,” Mr. Gira said in an interview.”

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Read full Wall Street Journal article here

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