(Adds background, comments from SEC Commissioner Dan Gallagher)
By Suzanne Barlyn and Sarah N. Lynch
WASHINGTON May 20 High-frequency trading firms
should be required to register with U.S. securities regulators,
the head of Wall Street's industry-funded regulator said on
"I think it would be a great thing for the (U.S. Securities
and Exchange Commission) to focus on whether there should be
registration requirements for active high-frequency traders,"
Richard Ketchum, chief executive of the Financial Industry
Regulatory Authority, said at FINRA's annual conference.
Such a requirement would create a separate licensing
category for firms that are primarily engaged in high-frequency
Ketchum's comments come as regulators have renewed their
focus on high-speed trading and whether it puts certain
investors at a disadvantage.
The issue was recently highlighted in a book by bestselling
author Michael Lewis, in which he alleged the markets are
The book has since prompted the FBI, the SEC, the U.S.
attorney general and the New York State attorney general to
reveal they are all investigating high-speed trading.
A "significant percentage" of high-frequency trading
activity is conducted through a few firms that register with
FINRA as broker-dealers, Ketchum said. Nonetheless, problem
activity often occurs through firms that are not registered, and
many of those entities do not have a U.S. location, he said.
The vast majority of enforcement complaints that FINRA files
against brokerages concern their failure to supervise high-
frequency trades their clients conduct, Ketchum said.
Ketchum said on Monday that FINRA is cracking down on
abusive high-frequency trades, which are made on the basis of
mathematical algorithms. The regulator currently has some 170
ongoing investigations on the subject, he said. [ID: L1N0O51DZ]
The SEC has been looking into the issue of a possible
registration requirement for high-frequency traders since at
least February, when an agency official publicly discussed the
Concerns around high-frequency trading are one of many
market structure issues the SEC has been exploring since 2010.
Other areas the SEC is looking at include anonymous trading
in "dark pools" and the practice of paying retail brokerages to
route orders to certain venues.
Several policies targeting high-speed traders, such as
charging fees for the message traffic they generate, have been
publicly debated but none have been proposed.
In recent years, the SEC started subscribing to the same
proprietary data feeds used by high-speed firms, in an effort to
get a better view of how they operate in the marketplace.
SEC Chair Mary Jo White has proceeded cautiously, saying the
agency is taking a "data-driven" approach to market structure
rules. She has not yet said what, if any reforms, could be in
At FINRA's conference, SEC Republican Commissioner Daniel
Gallagher told the audience he expects White to break her
silence soon in an upcoming speech and offer "some guidance on
the way we will move forward" on market structure.
An SEC spokeswoman declined on Tuesday to comment on
Ketchum's remarks about registering high-speed firms.
(Reporting by Sarah N. Lynch and Suzanne Barlyn; Editing by
Doina Chiacu and Dan Grebler)