Hensarling Urges Caution on Regulation of High-Frequency Trading

Article excerpt

Byline: Kevin Wack

WASHINGTON a GOP Rep. Jeb Hensarling warned market regulators Monday to proceed cautiously in their efforts to impose new rules on high-frequency trading.

In a speech at the American Enterprise Institute, a conservative think tank, Hensarling argued that high-frequency trading has made markets more efficient, and he took issue with critics who argue that the computer-generated trades have led to increased volatility.

"Technology has historically proven to improve markets' efficiency. And markets should have to adapt to the new technology," Hensarling said. "I wish to ensure our regulators first do no harm when it comes to high-frequency trading."

Hensarling's remarks were directed in particular at the Securities and Exchange Commission, which in January 2010 sought public comment on high-frequency trading, and has more recently raised concerns about those trading practices.

The so-called "Flash Crash" of May 6, 2010, when the Dow Jones Industrial Average quickly fell by about 1,000 points, brought public attention and closer regulatory scrutiny to high-frequency trading.

Hensarling, R-Texas, argued that the trading technique, which relies on computer programs to execute trades in a matter of milliseconds, became a scapegoat for the Flash Crash.

"The new technology is always one of the usual suspects," Hensarling said. "You could almost hear the cries, 'Down with the dark art of math and computer-based trading.'"

Hensarling's comments are important because he is one of the leading contenders to become the chairman of the House Financial Services Committee in 2013, which would give him a key role in overseeing the SEC.

Another contender for that job, Rep. Scott Garrett, R-N.J., will hold a congressional hearing Wednesday that will also look at the regulation of high-frequency trading. Market observers will be interested in whether there is any daylight between the views of Garrett and Hensarling on high-frequency trading. …