Ted Kaufman - United States Senator for Delaware

Schapiro Says SEC Likely to Seek Public Comment on High Frequency Trading

In Letter to Sen. Kaufman, SEC Chairman Says Commission Wants Input on Possible Special Trading Advantage, Including Co-location

December 8, 2009

WASHINGTON, D. C. – The Securities and Exchange Commission expects to seek public comment in January on a host of issues connected to so-called 'dark liquidity' — orders executed away from public view — as well as high frequency trading strategies which might provide unfair pricing advantages.

In a Dec. 3 letter to Senator Ted Kaufman (D-DE),  SEC Chairman Mary Schapiro also said she expects the Commission to consider two proposed rulemakings next month: implementing a 'large trader' reporting authority and addressing the risk of sponsored access.

Schapiro's comments were in response to a Nov. 20 letter sent to her by Kaufman, who since he took office in January, 2009, has become one of the Senate's most forceful advocates for strengthening the SEC's regulatory authority.

“Next month we hope to seek public comment, through a concept release or similar document, on a range of issues relating to dark liquidity in all of its forms, as well as the impact of high frequency trading in our markets,” Schapiro wrote to Kaufman, the second letter the SEC chairman has written to Kaufman about market structure issues this year.

“Among other things, we are likely to seek input on the various strategies used by high frequency traders and any special trading advantages they may enjoy, including through co-location arrangements.”

In his Nov. 20 letter, Kaufman urged Schapiro to take immediate steps to combat manipulative high frequency trading algorithms and the systemic risk associated with so-called sponsored access. “In short, Kaufman wrote, “we simply cannot permit high frequency practices to continue unchecked without the ability of regulators to observe and stop manipulation or to avert systemic risks.”

A pdf of Kaufman's Nov. 20 letter and Schapiro's Dec. 3 response are attached.

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