SEC To Say 'Tag, You're It'
Source: Forbes
By Alexandra Zendrian
The Securities and Exchange Commission is proposing a rule to tag high-frequency traders' trades at its April 14 meeting, according to a press release from Senator Ted KAUFMAN (D-Del.) applauding the SEC's efforts.
Tagging isn't anything new for the trading community. Firms tag all of their trades with a unique identifier for each trade by customer, by stock and time, among other things, Lime Brokerage CEO Jeff Wecker says. The SEC's proposal would require firms to use the same tag for all high-frequency trades.
"This is the first step to ensuring the SEC can better understand high frequency strategies and detect any manipulative algorithms," KAUFMAN said in the press release. "I further believe the Commission should mask the proprietary nature of this data and release it to the marketplace -- or at least to academics and private analytic firms under 'hold confidential' agreements -- so that independent analyses can be conducted on this data to assist the Commission in determining whether certain algorithmic trading strategies are illegal under existing anti-manipulation law," said Senator KAUFMAN in the press release.
In an interview with Steve Forbes on Intelligent Investing, Senator KAUFMAN said, "And I'm just saying there's some new technology, like high-frequency trading, where you have the market, the amount of high frequency trading in the market's gone from 30 % to 70%. No one really knows what's going on in terms of the high-frequency trading. We're not really monitoring the way we should. Therefore, there's no regulation. I'm not saying too much regulation; there's none. And so what we have to do is get in there and find out what's going on; we have to find ways to it." (Watch "Cleaning Up Wall St.")
It's the releasing of this data into potentially the wrong hands that makes Lime's Wecker nervous. He has concerns that firms could potentially use this data for their own advantage. "It's opening the door to go down a slipper slope," he says.
Wecker doesn't want to see high-frequency traders singled out, as other than market makers, "everyone else can play the game the same way." When asked about whether individual investors on E*Trade at home can "play the game the same way" as a high-frequency trader, Wecker says, "It's all about how people invest to do a better job at trading. That's a fair climate for encouraging broad market participation."