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UPDATE 2-Wall Street regulator backs registration for high-speed traders
May 20, 2014 / 5:27 PM / 4 years ago

UPDATE 2-Wall Street regulator backs registration for high-speed traders

(Adds background, comments from SEC Commissioner Dan Gallagher)

By Suzanne Barlyn and Sarah N. Lynch

WASHINGTON, May 20 (Reuters) - High-frequency trading firms should be required to register with U.S. securities regulators, the head of Wall Street’s industry-funded regulator said on Tuesday.

“I think it would be a great thing for the (U.S. Securities and Exchange Commission) to focus on whether there should be registration requirements for active high-frequency traders,” Richard Ketchum, chief executive of the Financial Industry Regulatory Authority, said at FINRA’s annual conference.

Such a requirement would create a separate licensing category for firms that are primarily engaged in high-frequency trading.

Ketchum’s comments come as regulators have renewed their focus on high-speed trading and whether it puts certain investors at a disadvantage.

The issue was recently highlighted in a book by bestselling author Michael Lewis, in which he alleged the markets are rigged.

The book has since prompted the FBI, the SEC, the U.S. attorney general and the New York State attorney general to reveal they are all investigating high-speed trading.

A “significant percentage” of high-frequency trading activity is conducted through a few firms that register with FINRA as broker-dealers, Ketchum said. Nonetheless, problem activity often occurs through firms that are not registered, and many of those entities do not have a U.S. location, he said.

The vast majority of enforcement complaints that FINRA files against brokerages concern their failure to supervise high- frequency trades their clients conduct, Ketchum said.

Ketchum said on Monday that FINRA is cracking down on abusive high-frequency trades, which are made on the basis of mathematical algorithms. The regulator currently has some 170 ongoing investigations on the subject, he said. [ID: L1N0O51DZ]

The SEC has been looking into the issue of a possible registration requirement for high-frequency traders since at least February, when an agency official publicly discussed the possibility.

Concerns around high-frequency trading are one of many market structure issues the SEC has been exploring since 2010.

Other areas the SEC is looking at include anonymous trading in “dark pools” and the practice of paying retail brokerages to route orders to certain venues.

Several policies targeting high-speed traders, such as charging fees for the message traffic they generate, have been publicly debated but none have been proposed.

In recent years, the SEC started subscribing to the same proprietary data feeds used by high-speed firms, in an effort to get a better view of how they operate in the marketplace.

SEC Chair Mary Jo White has proceeded cautiously, saying the agency is taking a “data-driven” approach to market structure rules. She has not yet said what, if any reforms, could be in store.

At FINRA’s conference, SEC Republican Commissioner Daniel Gallagher told the audience he expects White to break her silence soon in an upcoming speech and offer “some guidance on the way we will move forward” on market structure.

An SEC spokeswoman declined on Tuesday to comment on Ketchum’s remarks about registering high-speed firms. (Reporting by Sarah N. Lynch and Suzanne Barlyn; Editing by Doina Chiacu and Dan Grebler)

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