SEC Chair White Wants HFT Rules
SEC Chair Mary Jo White recently outlined the SEC’s efforts to regulate high frequency trading. Ms. White is calling for three fundamental regulatory reforms. First, she has asked the staff to develop a recommendation for an “anti-disruptive trading rule” intended to curtail active proprietary trading “in short time periods when liquidity is most vulnerable.” Second, Ms. White wants to regulate proprietary traders as “dealers” under the 1934 Act and remove the exception from FINRA membership for those trading in “off-exchange venues.” Third, Ms. White wants rules that require firms to improve their risk management oversight of trading algorithms. Although Ms. White advocates for regulatory changes, she said that the declining costs of execution, lower intraday volatility, and tighter spreads “show that the current market structure is not fundamentally broker, let alone rigged.”
OUR TAKE: We should refer to these rules as the “Michael Lewis” rules (much as we suggested that FINRA’s dark pool data should be called the “Michael Lewis” data) because these regulatory initiatives all arose following Mr. Lewis’s Flash Boys book about high frequency trading. What this will ultimately mean is more rules, more reporting, and more work for compliance departments.