High frequency trading is once again in the sights of Congress. The use of sophisticated computer algorithms to trade securities on a rapid basis at speeds far beyond the capabilities of human beings garnered much attention in the wake of the 2010 Flash Crash, as well as the more recent
BATS IPO and
Knight Capital fiascos. But, with a new Congress in session, legislators have indicated that they will be taking a fresh look at curbing, or even prohibiting, high frequency trading. Though there is much disagreement about to what extent high frequency trading exacerbates market volatility, the signals coming from two House committees suggest that legislation or regulation of the activity is on its way.
Rep. Edward J. Markey (D-MA), member of the House Energy Subcommittee on Communications and Technology sent a
letter to SEC Chair Elisse Walter on January 18, 2013 saying that high frequency trading represents a threat to market security, and indicating that the SEC already has the legal authority to regulate the activity. Markey authored a key amendment to the Market Reform Act of 1990 granting the SEC the power to limit or prohibit practices which result in extraordinary levels of volatility. Markey's letter states that he believes the amendment also extends to the SEC the authority to limit or ban high frequency trading. Rep. Markey says he would like a response from Chairman Walter by February 7, 2013.
Rep. Markey is not the only member of Congress worried about high frequency trading. Jeb Hensarling (R-TX) has
long been interested in the issue of high frequency trading. With Hensarling's ascension to the chairmanship of the House Financial Services Committee in the new Congress, it is more than likely that the committee will take up the matter. Hensarling has made clear that “this is not a debate about who has access to what technology; it is a debate about the health, efficiency, and competitiveness of our markets.”