That didn’t take long. Sen. Charles Schumer (D-NY) has asked the Securities and Exchange Commission to curb a trading technique that reportedly allows traders to use low-latency connections to acquire market data ahead of competitors. Schumer’s letter to the SEC came just hours after a New York Times story depicts high-frequency trading as a tool giving well-heeled insiders an unfair advantage over the broader market.
Schumer, who is chairman of the Senate rules and administration committee, said in a letter to the S.E.C. that he intended to introduce legislation barring the technique if the agency failed to act. “The hallmark of our markets are that they are open and above board and the little guy has as much of a chance as the big guy,” Schumer told the Times. “This takes a dagger to the heart of that concept.”
Leading players in the low-latency market responded. “If these types of programs are banned, it will drive liquidity away from exchanges and perpetuate a two-tier market,” William O’Brien, chief executive of Direct Edge, told the Financial Times, noting that the Direct Edge system was available to any brokerage that wished to participate.
BATS also told the FT that any trading firm could submit flash orders with its system and it was “ready to participate in an industry review of potential issues associated with them, including the possibility that they create a two-tier market”.
Bloomberg noted that “flash” trades represent less than 4 percent of all trades, and wrote that “Schumer’s July 24 letter raises the stakes in a debate over whether computer-driven trading by hedge funds and Wall Street firms gives them an unfair advantage over other investors.”