Another Senator Slams High-Frequency Trading And Dark Pools

Delaware Senator Ted Kaufman

Another lawmaker is pressing for more oversight of sophisticated investing tools unavailable to the general public.

Democratic Delaware Senator Ted Kaufman asked the SEC to review “questionable market structure issues” including flash orders and dark liquidity pools in a letter to SEC Chairman Mary Schapiro:

I am concerned that questionable practices threaten to further erode investor confidence in our financial markets and that our understanding and regulatory capacity have not kept pace with those changes…I believe the SEC’s rules have effectively placed “increased liquidity” as a value above fair execution of trades for all investors.

As we’ve said before, such trading practices may not be such a bad thing. Professional investors will always have an edge over the general population and the more people recognise that, the better. “Investor confidence” may actually backfire: it’s better to have the average person sceptical of the markets and in turn focus on long-term investing than having Jane and John Public think they can outsmart Goldman Sachs and JPMorgan on quick trades.

Plus, too much regulation would hurt an already troubled financial sector. As Reuters notes, more than 60% of all U.S. equity volume is estimated to involve high-frequency traders and that any curbs on high-frequency trading “could drive down trading volumes, boost volatility, and hit the revenue of financial firms and exchange operators.”

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