Monday, October 1, 2012

Chicago Fed warned on high-frequency trading, SEC slow to respond

(Reuters) - More than two years ago, the Federal Reserve Bank of Chicago was pushing the U.S. Securities and Exchange Commission to get serious about the dangers of superfast computer-driven trading. Only now is the SEC getting around to taking a closer look at some of those issues.

Critics of the SEC say the delay is part of a pattern of inaction in dealing with the fallout from high frequency trading and shows that the regulator doesn't yet fully appreciate how fears of machine-driven market meltdowns are driving investors away from U.S. markets.

Even as the SEC gears up for a meeting on Tuesday to discuss software glitches and how to tame rapid-fire trading, the eighth public forum it has had in two years on market structure issues, regulators in Canada, Australia and Germany are moving ahead with plans to introduce speed limits to safeguard markets from the machines.

One item up for discussion is whether regulators should require trading firms and exchanges to deploy a "kill switch" so that they can quickly shut down a runaway high-speed computer program. That's one of the seven recommendations the Chicago Fed made to the SEC in its March 25, 2010, letter. Read More