High-frequency trading is in the sights of a Senate panel that conducted some of the sharpest scrutiny of Wall Street firms over wrongdoing tied to the 2008 credit crisis.
Senator Carl Levin, chairman of the Permanent Subcommittee on Investigations, asked regulators to provide information on risks posed by high-speed traders in advance of a hearing this month, according to three people with knowledge of the matter.
Levin, a Michigan Democrat, sought responses from the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) to 13 questions on the effects, trends, concerns, and regulatory reaction related to high-frequency trading, according to a copy of the letter obtained by Bloomberg News and confirmed by one of the people.
“We have remained concerned with those issues, as public interest in high-frequency trading in the U.S. capital markets and apparent trading abuses in connection with high-frequency trading have increased,” according to the April 11 letter signed by Levin and Senator John McCain of Arizona, the panel’s top Republican. They requested responses by May 1.
Elise Bean, staff director for the Permanent Subcommittee on Investigations, declined to comment.
Lawmakers are increasing pressure on regulators and prosecutors to rein in computerized and algorithmic traders who account for about half of U.S. stock trades. Traders like those highlighted by Michael Lewis in his book “Flash Boys” have been linked by critics to the May 2010 flash crash and market volatility during the European debt crisis.
SEC and CFTC Plans
SEC Chair Mary Jo White, in a speech today, unveiled her agency’s strongest plan yet for reining in high-frequency trading. Proprietary traders who use automated strategies would have to register with the SEC and comply with its rules, White said at the Sandler O’Neill & Partners Global Exchange and Brokerage Conference in New York.
The CFTC is also considering possible new regulations, including whether a registration requirement would improve market oversight.
Levin’s committee is known for its highly publicized investigations that often result in regulatory investigations or regulatory action. Past hearings have focused on Goldman Sachs Group Inc.’s sales of collateralized debt obligations that soured during the credit crisis, JPMorgan Chase & Co.’s London Whale trading losses and Credit Suisse Group AG’s offshore tax evasion.
In his letter to the SEC and CFTC, Levin asked if the regulators had found evidence that investors pay a higher price to buy or receive a lower price to sell and any evidence linking high-frequency trading to exchange-related problems or concerns.