Rep. Ed Markey (D-Mass.) today called on Securities and Exchange Commission Chair Elisse Walter to consider utilizing the commission's authority under the Market Reform Act of 1990 to combat high-frequency trading in the equities markets. The Market Reform Act, which Rep. Markey authored in 1990, gives the commission authority "to prohibit or limit practices which result in extraordinary levels of volatility."
High frequency trading ("HFT") involves the use of algorithms in computers that automatically buy and sell securities at certain price levels at incredibly fast speeds. With a sufficiently sophisticated computer, HFT makes it possible for a trader to buy and then sell a stock within one millionth (1/1,000,000) of a second, thousands of times faster than a human can breathe or even think. HFT is increasingly dominating our markets. The Executive Director of Financial Stability at the Bank of England actually estimated in 2010 that HFT firms account for 70 percent of all trading volume in U.S. equities, and there is reason to believe that HFT has only grown since then.
"I believe high frequency trading is a clear and present danger to the stability and safety of our markets, and that its use should be curtailed immediately," writes Rep. Markey. "As a result, I wanted to remind the Commission that the Congress has already given the Securities and Exchange Commission broad powers to limit or ban this practice."
"While some persons claim that HFT may provide increased liquidity to financial markets, it also may be flushing investors out of the markets," continues Rep. Markey. "Specifically, ordinary investors are increasingly citing HFT as evidence that markets are a 'rigged' game where large firms with a high-speed super-computing terminal can always outperform ordinary investors with a laptop. I firmly believe that a technology that closes the markets off to ordinary investors is a technology that should be constrained. Just as we do not allow people to drive a Formula-One race car at 200 MPH on the Massachusetts Turnpike, we should not allow a few Wall Street firms to trade millions of times faster than the average 401K investor on the S&P 500."