Senator Kaufman Approves SEC Proposal Calling For Elimination Of Naked Access
Yet as even Senator Kaufman, the last person left in D.C. who is fighting the uphill battle for an efficient market, and not a puppet proxy of various HFT interests, acknowledges, there is still a lot to be done.
Kaufman Applauds SEC’s ‘Concept Release’ on High Frequency Trading and Proposed Rule to Ban Naked Access
Reiterates need for rule requiring disclosure of high frequency trading data and independent empirical analyses to measure impact of market developments on long-term investors
WASHINGTON, D.C. – Senator Ted Kaufman (D-DE) on Wednesday applauded the Securities and Exchange Commission for its rule proposal that would eliminate so-called ‘naked access,’ which allows traders to deal directly with exchanges without the pre-trade financial and risk checks applicable to and monitored by broker-dealers. Studies estimate such trading represents as much as 38 percent of daily trading volume.
The Commission also voted to publish a so-called ‘concept release’ on a host of equity market-structure issues, including high frequency trading. Kaufman originally called for a comprehensive review of this kind in an Aug. 24 letter to SEC Chairman Mary Schapiro.
“I am very pleased that the Commission is ready to ask serious questions and drill down beneath the standard-issue ‘provides liquidity’ defense of high frequency trading. The SEC needs to understand and control technology and its benefits, not permit technology to operate without regulatory understanding or access to needed data, and in doing so outrace the regulators’ ability to ensure market fairness for long-term investors. I am hopeful that a variety of independent parties will provide the Commission with the empirical studies needed to assess the price impacts of these trades on long term investors, though I worry that the data needed to undertake those studies is still not available,” Kaufman said.
The SEC’s actions today follow a Nov. 20 letter Kaufman sent to Chairman Schapiro calling on the SEC to address risks created by naked access and take steps to increase transparency surrounding high frequency trading. In her Dec. 3 response, Chairman Schapiro also promised that the Commission would use its “large trader” authority to implement stricter reporting requirements for high volume traders.
Said Kaufman: “A proposed rule on tagging and reporting of high frequency trading is a critical element of ensuring the integrity of our financial markets. I look forward to Chairman Schapiro expediting that process.” Kaufman is concerned that with 70 percent of the daily volume now represented by high frequency trading, most market participants profit directly or indirectly from that volume, and so are conflicted in critiquing it effectively. Many who may be disadvantaged by high frequency trading neither have the empirical data nor the analytical capability to measure the price impacts high frequency trading may cause them to suffer.