New York Attorney General Eric Schneiderman yesterday restated plans to pursue high-frequency trading (HFT) firms, but the wider market has long since adapted to low-latency trading, Sang Lee, managing partner with research consultancy Aite Group has said.
A Tuesday speech, Schneiderman claimed some practices of firms engaging in low-latency trading could be illegal by providing an advantage over other market participants.
“I am committed to cracking down on fundamentally unfair and potentially illegal arrangements that give elite groups of traders early access to market-moving information at the expense of the rest of the market,” Schneiderman said at a New York Law School event.
Speaking to theTRADEnews.com, Aite’s Lee said the Attorney General’s pursuit of HFT firms appeared to be underpinned by assumptions not supported by evidence, and sought to deal with an issue to which the market has long since adapted.
“I think the Attorney General is 12-24 months late,” Lee said. “Regulators are continually looking at HFT, but I’m not sure this [investigation] will add any insights to US market structure.”
He said a more efficient way for the Attorney General’s office to establish whether or not firms engaging in high-frequency activity were weakening the overall market would be to seek data from US regulators, like the Securities and Exchange Commission, or academics that have studied this subset of the market for years.
He said labeling companies ‘HFT firms’ was misleading, as low-latency trading, faster access to market data and venue co-location were techniques used by a broad group of market participants.
“There is confusion in the market about what exactly HFT is – it’s a type of trading and many different types of firms engage in it, such as broker-dealers and market makers,” he said.
A reduction in US equity market volumes in recent years – notwithstanding strong performance seen in 2013 – has also reduced the number of firms engaging in the predatory behavior Scheiderman seeks to investigate.
This, combined with higher competition between low-latency proprietary trading firms and the push for a greater number of broker-dealers to improve their infrastructure, has reduced the potential advantage and profits sought by supposed HFT firms.