Under Fire – High Frequency Trading

HFT or High Frequency Trading, a practice where computers are used to complete various financial trades over a span of mere milliseconds,  has come under the fire of staunch criticism during the past year and a half or so. Especially since an incident dubbed the “Flash Crash”, which occurred the 6th day of May, 2010. Since that incident, few have offered there support in any public fashion to the practice or, for that matter, to Algorithmic Trading Firms.

Even under this harsh criticism, many firms that employ the practice of HFT, for example, Getco – one of the largest market-making firms who generate a great deal of their profits by High Frequency Trading – are aggressively lobbying Washington in an attempt to ensure that their voice is heard. This isn’t simply a ploy to garner press attention; more to the point, they are taking an active and demonstrated stand so that regulations that could prove detrimental to theirs and other such businesses.

A recently formed trade association – The Principle Traders Group – comprised of representatives from a various number of these HFT firms, have presented a plan of action designed to educate the general public in regards to the practice and function of electronic, high frequency, and algorithmic trading practices by actively engaging the media to ensure a more fair and balanced depiction.

Though the PTG – a member of the Futures Industry Association, is not an actively recognized as a lobby group its self, a noticeable number of member firms, have been readily recruiting aides in an effort to push their unique interests in Washington and Congress. Among these aides are counted former regulators themselves; thus they should have a solid working knowledge of SEC and CFTC practices and regulations.

To say the least, this should be an interesting upcoming series of strategic manoeuvres, and resulting possible repercussions for markets as a whole. Will regulations become increasingly rigid in respect to computer based trading practices or will the high frequency trader community stand tall and continue to gain momentum? Only time will be able to truly answer those questions.