April 16, 2012

There has been much talk in recent months about how U.S. regulators are stepping up their efforts to better regulate high-frequency trading. We've explored this story from a number of angles this year already, touching on everything from how a newer, bolder Securities and Exchange Commission is preparing to tackle the high-frequency marketplace, to what the global exchanges are doing to fend off abusive high-speed techniques.

But for all the talk about what regulators are preparing to do, a number of former SEC lawyers told the Huffington Post that the nation's largest securities regulator doesn't come close to monitoring even half of the trades that HFTs fire off on a daily basis. And even the measures they're weighing - which we broke down last month – won't be able to effectively regulating high-speed trading.

From Huffington Post:

"It's inconceivable that they can regulate [high-frequency trading]," said Ralph Ferrara, a former SEC general counsel. "There are too many [high-frequency trading] systems; they're all idiosyncratic; they're all different. The SEC is starved for cash, starved for talent. A small-sized hedge fund can outperform the SEC," added Ferrara, who left the commission in 1982 and is now a vice chairman of Dewey & LeBoeuf who specializes in securities law.

Former SEC enforcement lawyer Philip Khinda essentially likens what regulators are doing to someone bringing a knife to a gunfight.

"You've got 21st-century trading strategies and software being monitored by an agency that still only has 20th-century capabilities," said former SEC enforcement attorney Philip Khinda, who left the agency in 1996.

"The commission doesn't have the ability to monitor high-frequency trading, not just in terms of sophistication; it doesn't have the cold hardware to keep up," said Khinda, now co-head of the SEC enforcement practice at Steptoe & Johnson in Washington. "It doesn't have the tools. It's only just begun to assemble them."

ABOUT THE AUTHOR
As the Senior Editor of Advanced Trading, Justin Grant plays a key role in steering the magazine's coverage of the latest issues affecting the buy-side trading community. Since joining Advanced ...