September 28, 2012 / 4:11 PM / 6 years ago

Market technology risks in spotlight at SEC meeting

NEW YORK (Reuters) - U.S. financial regulators have called on experts in high frequency trading to discuss the risks technology poses to stock markets following the latest in a series of trading errors blamed on computer glitches.

The U.S. Securities and Exchange Commission on Friday published a list of computer specialists and scientists mostly tied to big Wall Street firms who will give presentations at the roundtable next week on technology issues in the U.S. stock market.

The SEC scheduled the Tuesday discussion after a wayward trading event on August 1, when a software glitch led stock market maker Knight Capital Group into an erroneous buying frenzy. Knight’s activity moved markets and nearly brought down the firm, ultimately costing it $440 million.

Technological problems have also been blamed for events like the May 6, 2010 flash crash and the botched initial public offerings of Facebook and the BATS Exchange.

While high frequency trading is not the only computer-driven trading in the marketplace, it is where the most time and resources go to developing the latest technologies. High frequency traders are often blamed for large movements in the market because they operate so quickly, and often trade at high volumes.

The roundtable’s first panel will deal with preventing errors in trading, while its second will focus on responding to market crises once they occur.

“It is common for the majority of participants on these panels to be pro-HFT, mostly because they understand the market structure better than anyone,” said Dennis Dick, a trader at Bright Trading in Detroit and a cofounder of Premarket Info.

“It is hard to find market structure wizards that aren’t involved in HFT.”

High frequency trading is carried out by powerful computers, with trades completed at speeds more than twice as fast as the blink of a human eye. High frequency trading firms spend tens or even hundreds of millions of dollars on technology, and their activities have recently drawn criticism from other stock market participants, who say they hold unfair advantages in the marketplace.

The panel discussion will bring together representatives from the high frequency shop GETCO, UBS, the trading services firm ITG, and the exchanges BATS, NASDAQ, the New York Stock Exchange and Direct Edge.

The most notable critic of high frequency trading who made the list is Dave Lauer, a consultant on market structure and high frequency trading from Better Markets.

Academics from Massachusetts Institute of Technology and Bentley University will also appear as panelists.

Reporting By Emily Flitter

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