New York: Regulators considering new rules for US stock markets should take care not to assume that certain types of high-frequency trading are harmful, speakers at a conference on algorithmic trading said on Friday.
The US Securities and Exchange Commission's (SEC) appeal for public comment on equity market structure is largely balanced, speakers at the New York University conference said. Changes are likely, but none too dramatic, they said.
The SEC's 74-page "concept release," or comprehensive document on the subject, issued last month, asks whether the highly automated equity markets are fair to all investors, and whether they have the tools to protect their interests.
The SEC wants to know how long-term investors are affected by the specific strategies used by high-frequency traders those firms that use sophisticated algorithms to submit rapid-fire orders, earning profits on thin market imbalances.
Skewed analysis
Eric Hess, general counsel at Direct Edge, an alternative trading venue that accounts for about 10 per cent of all US equity trading, said he is concerned the regulator is playing up a conflict between long- and short-term investors.
"Constructing this release under the paradigm of this conflict skews the basis of analysis," Hess said. "The long-term and short-term investors need each other."
The SEC says the interests of these two types of investors may align, for example, when short-term investors dampen volatility, and may at times diverge, when the competition of short-term strategies are not useful for longer-term investors.
