Better Markets High Frequency Trading and Market Structure Consultant Dave Lauer is speaking today at the Securities and Exchange Commission roundtable entitled “Technology and Trading Roundtable: Promoting Stability in Today’s Markets.”
“High speed computer trading mayhem and crashes are becoming the new normal in our capital markets,” stated Dennis Kelleher, President and CEO of Better Markets. “The SEC must act and act fast before the next major disaster results in hundreds of millions if not billions of dollars in investor losses. It’s not just the individual investor who is getting hurt by unregulated and predatory high speed computer trading. When investors don’t trust our markets, American businesses and our entire economy suffers. To prevent this, high speed trading and computers must be required to follow some very basic rules of the road that protect our markets, our investors and our economy.”
“The market is no longer run by people gathered together on the floor of a stock exchange. The ’market’ is more of a concept, a public good to which exchanges, acting as utilities, provide access. Technology has moved so quickly that most market participants have not been able to keep up.” This is a major reason why confidence in our markets is suffering, retail investors are fleeing the market, and the IPO environment is so weak.
“Depending on the trading firm, the life cycle for the development, testing, and deployment of a new trading strategy ranges from minutes to months to one year. At a few firms, new trading strategies are quickly implemented by tweaking code from existing strategies and placing new code into production in a matter of minutes.” However, the “need for profitable HFT systems cannot take precedence over the quality—stability and reliability—of the global system.”
Dave’s remarks address some of the many ways that regulators can play a more robust role in monitoring and controlling the technology used in high frequency trading. These include requiring that HFT firms establish independent Quality Assurance teams and conduct sufficient load and sceanrio testing; strengthening the technology development standards followed by any firm with direct market access, establishing greater data transparency, and creating a market wide surveillance system which includes the ID’s of individual automated trading strategies.
“High-profile technology failures are becoming commonplace on Wall Street. The SEC must recognize that solving the problems of market structure, fairness, and orderliness are now technology issues, and must confront these issues with technology.”