Rep. Markey Letter to SEC on High-Frequency Trading (with Lofchie Comment)

In a letter to the SEC, Rep. Edward Markey (D-Mass.) has suggested that, because of a 1989 law he co-sponsored, the agency has the ability to slow down, or even stop, high-frequency trading. Rep. Markey has referenced a law that gives the SEC power to "limit practices which result in extraordinary levels of volatility."

Lofchie Comment: I worry about the increased assertions that high-frequency trading should be banned as a bad thing without any acknowledgement of quite significant regulatory studies to the effect that HFT has a generally positive effect on financial markets. The letter complains that (i) trading volume in the U.S. markets is down and (ii) HFT accounts for over 70% of trading volume. Doesn't it follow then that banning HFT would have a very material negative impact on trading volume and liquidity, maybe even a devastating impact?Beyond that, I am puzzled as to why high-speed trading and algorithms by institutions are portrayed as bad for retail investors. To the extent that such trading acts to instantaneously eliminate market pricing inefficiencies, isn't that good for retail investors?The letter further suggests that Wall Street firms should not be allowed to trade "millions of times faster than the average 401k investor on the S&P 500." But it is not clear whether thousands of times faster is OK, or tens of times, or double. In fact, the letter goes on to suggest that a "few Wall Street firms" should not be allowed to "outperform ordinary investors with a laptop." If that is the case, then one would also wonder whether institutional investors should be permitted to do financial research: doesn't that also permit them to outperform ordinary investors?

View letter in full here (links externally to House website).The "law" to which the letter refers isSection 9(i) of the Securities Exchange Act.