SEC ‘Failure To Regulate’ NYSE On HFT

The high frequency topic is all the rage these days and with good reason. Free market capitalism is dependent on free and fair markets.

Are our equity markets free and fair these days? By my definition they are not.

With people on both sides of this topic voicing their strongly held opinions, more and more of the onus is placed on those regulating the markets to see that the playing field is level for all participants. I think that is a huge part of the problem and wrote as much the other day in asserting, “The fact that the FBI states that it is working in concert with the CFTC, SEC, and FINRA in this investigation should be a cause of very real concern.”

A recent commentary in Crain’s Business highlights this very point: 

In September 2012, the SEC said it found that the NYSE gave certain customers who used computer-driven trading strategies an early look at market prices. The glimpses lasted anywhere from single-digit milliseconds to several seconds. The agency added that the NYSE “did not take adequate steps to comply” with the rule barring early release of the data.

Wow, that sounds like a serious infraction. Several seconds is an eternity in the world of lightning-fast trading, plenty of time to jump ahead of others and force them to pay higher prices for stocks they want to buy.

Yes, plenty of time indeed to front run.

Yet however you want to describe how the SEC handled the matter, the term “crack down” doesn’t come to mind.

The agency fined the NYSE $5 million and ordered it to hire an independent consultant. It didn’t require an admission of wrong-doing. The NYSE said at the time that it fixed the identified problems and “the timing differentials stemmed from technology issues, not from intentional wrongdoing by the exchange or any of its personnel.”

No wrong doing and nothing intentional. No, of course not.

What’s that you say? Did somebody in the back of the room say “blowjob?”