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January 22, 2013

“High Speed Computer Trading Is Damaging US Financial Markets”


Washington DC, September 20, 2012- Better Markets High Frequency Trading and Market Structure Consultant Dave Lauer, is testifying before the Senate Committee on Banking, Housing and Urban Affairs on September 20th 2012 at 10AM at a hearing entitled “Computerized Trading: What Should the Rules of The Road Be?” The testimony will be before the Subcommittee on Securities, Insurance, and Investment.

As Dave notes in his opening statement, “remarkably, since the Flash Crash there have been no substantial changes to market structure to prevent another one. There is no doubt that electronic trading has value to offer, but what we must be concerned with is whether the pendulum has swung too far, and whether the nearly unregulated activities of 50%-70% of stock market volume should be permitted to continue.”

Dave’s testimony addresses the many reasons that investor confidence has decreased, including an increase in stock market volatility, an increase in spreads, an increase in catastrophic event frequency, and a drop in IPO activity. All of this has resulted in retail investors fleeing the stock market.

“The microstructure of the equity market has been altered by HFT and extreme market fragmentation resulting in an excessively fragile market. This fragility is apparent in the impact a single firm or even a single server can have on the market-at-large, whether accidental, or nefarious and predatory.”

Dave suggests some remedies for reform including: unifying trading rules, subjecting market makers to affirmative  obligations, assigning a unique identifier to every supervisory individual and attaching it to every quote, and the elimination of pay-for-order-flow practices.

Dennis Kelleher, President and CEO of Better Markets adds that “computerized trading isn’t necessarily bad, but too much of high frequency trading is predatory.  It is destabilizing the markets, eroding confidence and hurting our economy and businesses. More and more people believe that the markets are rigged by insiders for insiders. This results in lower confidence and lower liquidity.  With high frequency trading firms dominating up to 70% of the markets, they are creating a level of speed and complexity that is putting the markets themselves at risk. This isn’t fair to the average investor, and it isn’t doing anything to help bring back investor confidence which is needed to make our markets stable, more liquid and better capitalized.” 

About Better Markets

Better Markets is a nonprofit, nonpartisan organization that promotes the public interest in financial reform in the domestic and global capital and commodity markets. Better Markets advocates for transparency, oversight and accountability with the goal of a stronger, safer financial system that is less prone to crisis and failure thereby eliminating or minimizing the need for more taxpayer funded bailouts.

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