Despite the SEC’s reputation for being ineffectual, the fact that it had a day-long roundtable on high frequency trading (HFT) yesterday was big news.
The point was to figure out if algorithmic computer trades executed in milliseconds add volatility to the market (as individuals who testified on The Hill recently have said). The roundtable’s purpose was to find ways to prevent more flash crashes and Knight Capital-type incidents and give the entire investment public more confidence in the market.
Commissioner Mary Shapiro said it most succinctly: “Our concern is not whether a single firm might fail, but whether it causes collateral damage to investors and their confidence in the integrity and stability of our markets.”
So the SEC tackled an issue with so many moving parts it can make one’s head spin. Here’s what they pinned when all was said and done: It would be good to have kill switches.
A kill switch would allow an exchange (or broker — whoever has the power) to stop a trade dead in its tracks. By the end of the day, the panel basically agreed that if kill switches were going to come into existence, they should be computer automated with human discussion to follow quickly.
But what firm would want to pull a kill switch on it’s own trade? That would be like a “suicide switch,” said one panelist.
That’s what Shapiro stepped and said that pulling the kill switch isn’t a commercial decision, it’s about market integrity.
So, who should pull it again? Expect the questions to keep coming.