April 10 The New York official responsible for overseeing state securities laws on Thursday urged all U.S. stock exchanges and trading venues to consider changing their computerized order systems to stop high-frequency traders from profiting at the expense of ordinary investors.
Chad Johnson, chief of the Investor Protection Bureau for the New York Attorney General, said state investigations now underway would show whether enforcement actions would be needed.
"We shall see what the investigations show," Johnson told the annual conference of Securities Traders Association of New York.
He said the exchanges and trading venues could take "sensible action" beforehand, and he urged the implementation of safeguards known in the industry as "speed bumps" designed to take away an advantage he said high-frequency traders enjoyed.
"Market reform does not have to come from above," he said.
Regulatory scrutiny of high-frequency trading has increased, sparked largely by author Michael Lewis's latest book, "Flash Boys." The book argues that the U.S. stock market is rigged to the benefit of the fast traders allegedly in cahoots with the exchanges and alternative trading venues.
The Justice Department and FBI recently announced investigations into high-frequency trading, while U.S. security regulators and the New York Attorney General said their investigations were ongoing.
Johnson said he knew of no regulation that would prevent the exchanges from implementing a speed bump. Johnson referred to a proposal by University of Chicago professors to hold "batch auctions" and a system used by dark pool IEX Group that slows orders entering the trading platform as examples.
Johnson also called for the elimination of a two-tiered system of data feeds where high-frequency traders take advantage of a faster, proprietary feeds to the detriment of those in the market using a slower feed known as the consolidated tape.
Usage of the faster feeds, which he called "latency arbitrage," reduced the amount of shares being offered in the market because of fear of the practice, he said. (Reporting By Herb Lash)