A Slow Government’s Response to High-Frequency Trading

Nolan Hudalla, MJLST Staffer

High-frequency trading (HFT) is the use of enhanced technological speed to gain an edge in trading financial instruments. This edge over other investors is often only 1/100th of the blink of an eye, but can provide a company with years of unwavering success. Although HFT became significant within the past decade because of its positive economic advantages, the recent discussion of HFT is becoming increasingly negative. A major reason for this shift in opinion about HFT is due to the increased awareness of unethical trading practices after the 2008 financial crisis.

MJLST published an article last year on the ethics of HFT. In that article, The Law and Ethics of High-Frequency Trading, Steven McNamara advanced various reasons why certain HFT practices violate both business ethics and federal agency regulations. But where do Congress and the SEC stand, and what have they done to correct such unethical practices in HFT?

It appears that the federal government is taking a middling approach to fighting unethical HFT practices. In particular, the SEC has not taken a hard stance on many HFT issues, and Congress has followed suit by not passing any bills in 2016 to fight HFT. However, it is also evident that the SEC and Congress are troubled by ongoing bad practices and are aware of the risk of future violations. Specifically, Congress has introduced several bills “imposing a tax on a broad array of financial transactions that could impact HFT . . . [and] also held hearings in the 114th Congress touching on HFT issues as part of its oversight of the SEC and CFTC.” In addition, the SEC has increased enforcement on serious HFT ethics violations. The agency also approved a new public stock exchange in June with a “speed bump” capable of deterring some HFT activity.

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