Congressmen warn SEC on blaming high-frequency traders

Tue Aug 31, 2010 11:38pm BST

* Bachus, Hensarling sent letter to SEC's Schapiro

* Letter notes political pressure in wake of 'flash crash'

NEW YORK Aug 31 (Reuters) - Two U.S. congressmen have urged the U.S. Securities and Exchange Commission to do a thorough analysis and ignore political pressure before blaming so-called high-frequency traders for the stock market's May "flash crash."

Republican Representatives Spencer Bachus and Jeb Hensarling warned that "turning back the clock" and reversing marketplace innovation "could do more harm than good," in an Aug. 24 letter to SEC Chairman Mary Schapiro.

The SEC has yet to fully explain the unprecedented crash on May 6, in which the Dow Jones industrial average tumbled some 700 points in minutes before rebounding sharply. Many observers have partly blamed some of the computerized high-frequency traders for exacerbating the plunge by not trading.

Bachus and Hensarling urged the SEC to understand the importance of firms that provide the market with liquidity as it considers new rules. They also posed 15 questions on several recent SEC proposals for the marketplace, which has become far faster and more complicated over the last decade.

"Changes in equity market structure did not occur overnight and the SEC's response to these changes should be based on economic and empirical market data, not political pressure," they said in the letter.

The pair are the latest in a handful of lawmakers to enter the debate that began last summer and accelerated this year. The SEC in January issued a comprehensive paper on high-frequency trading and other market developments, seeking public comments. (Reporting by Jonathan Spicer, editing by Leslie Gevirtz)

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