UPDATE 1-Mark Cuban to SEC: Go after high-speed trading, not insider trading

Thu Feb 20, 2014 4:49pm EST

By Sarah N. Lynch

WASHINGTON Feb 20 (Reuters) - Dallas Mavericks owner and prominent investor Mark Cuban is never shy about criticizing the U.S. Securities and Exchange Commission and its failure to prevail in its high-profile insider-trading case against him last fall.

As it turns out, he is equally passionate about high-frequency trading, too.

At a lively private event in Washington on Thursday held by Cooley LLP, one of the law firms that helped defend his case, Cuban told a small group of lawyers that the SEC should stop wasting its time focusing on insider-trading cases and turn its attention to rapid-firing computer trading instead.

"It is the biggest threat to our national security, in my opinion," Cuban said. "If I wanted to blow up this country, I don't need bombs."

To watch a clip of his comments, visit

High-frequency trading is a topic that has been in regulators' sights now for years, but experts have remained divided on whether the practice helps or harms markets.

The SEC ramped up its review of high-speed computer trading after the May 6, 2010 "flash crash," in which the Dow Jones Industrial Average plunged about 700 points before sharply rebounding.

Regulators later determined that high-speed traders did not cause the crash. But market liquidity did dry up after high-frequency traders hit the exits, prompting calls by some for new rules that would require them to act as market-makers.

Cuban chided Washington policymakers for taking so long to take action on the issue, noting they are merely "holding hearings" and "discussing it."

He painted a hypothetical doomsday scenario, saying that a "sovereign entity" could simply use algorithms to start trading billions, and later down the road decide to intentionally "screw up" the marketplace.

"It is going to happen so fast and it is going to be so undetectable that people will say it's a fat finger," he said. "The next thing you know, there are flash crashes...and there is so much confusion that people don't trust the markets and then they pull out."

He added that he believes high-speed trading "brings nothing to the market" because it is "not an investment" and "doesn't bring liquidity" because it is removed whenever there is a threat to the algorithms.

Cuban's comments immediately generated a debate on Twitter, with advocates saying high-speed trading has actually made markets a better place.

"It's a mistake to ignore the important role of the intermediary that many (high-frequency trading) firms fill by allowing investors to quickly get in and out of positions at the prices they desire," said Peter Nabicht," a senior adviser for the Modern Markets Initiative, a group formed recently to advocate for the interests of high-speed traders.

"The facts demonstrate the many benefits of electronic trading, including transparent, competitive prices and democratizing market access. Exaggerated conspiracy theories distract from the ongoing and informed dialogue many market participants are having to improve our markets."