Thank you, Mr. Chairman. When
These concerns about high-frequency trading have fueled suspicions that
The Subcommittee interviewed many industry participants, academic researchers, and key financial regulators. While the problems facing the market are complex, we can address them with a few common sense solutions. For example, one of the most predatory high-frequency trading practices depends on the unintended consequences of the
Another key tactic used by high-frequency trading firms is co-location. This practice involves trading firms literally renting space for their computers in the same room as the computers that run the stock exchanges so that they can receive market information directly from the exchanges' computers as fast as possible. The investors that don't buy this direct connection to the exchanges receive market data via a government-established system using out-of-date technology called the Securities Information Processor that compiles market data much more slowly. But, as experts told the Subcommittee, there is no reason why public data feeds like the Securities Information Processor cannot be improved so that they are effectively as fast as private data feeds acquired through co-location. Updating the technology in the Securities Information Processor is another helpful measure that can be quickly adopted to shore up consumer confidence in the market.
In addition to high-frequency trading, Flash Boys also described how stock exchanges often pay rebates to stock brokers to entice them to trade on those exchanges. Those rebates, called "maker-taker payments," create an apparent conflict of interest for the stock brokers, who must choose between sending their clients' orders to exchanges offering a higher rebate or to exchanges that would fill the orders as quickly as possible. While many trading firms argue that those payments spur more market activity and reduce costs for consumers, some experts have argued that these benefits are minimal and that investors are harmed by their brokers' conflict of interest.
The Subcommittee has found that there is a lack of publicly-available data regarding maker-taker payments, leading to difficulties in determining whether the payments actually have an adverse effect on the market. A logical first step would be to have more transparency in the payments, allowing neutral researchers to study the issue in greater detail.
I hope that this hearing will educate the public about high-frequency trading and broker conflicts of interest, and I look forward to hearing what the witnesses have to say. Thank you, Mr. Chairman.
Read this original document at: http://www.hsgac.senate.gov/download/?id=255989ce-b1ed-4a7b-adbb-5dd74dcff33d
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