High-frequency trading (HFT) was in the spotlight when Michael Lewis’ “Flash Boys” was released and he made an appearance on 60 Minutes. Things started to die down just a bit for a while, but HFT is back in the news once again after some torpor, hibernation, and estivation (source). Last week, the Senate’s Permanent Subcommittee on Investigations held a hearing on “Conflicts of Interest, Investor Loss of Confidence, and High Speed Trading in U.S. Stock Markets.”
Clearly, the online brokers have a large stake in this because of their revenue that comes from trading volume. As we posted back in April, Interactive Brokers (IBKR) became the first online broker to offer direct routing to IEX. IEX is being billed as a platform designed to resist the techniques of high-frequency traders.
What did the congressional committee think about high-frequency trading? Only three of the senators on the committee even spoke, and the questions were a little less sharp than many expected. Who spoke at this meeting? BATS CEO Joe Ratterman said, “The markets are not broken, let alone rigged.” TD Ameritrade’s Stephen Quirk spoke about how the company routes orders. Brad Katsuyama testified as well and he listed what IEX believes should happen regarding HFT. In all, the majority of the time here was spent on order routing and that was seen as a major positive for the online brokers. E*TRADE (ETFC) shares added 8% and Charles Schwab (SCHW) shares added 5.5% following the hearing.
Still, the news and controversy about HFT isn’t about to go away anytime soon. It was just announced that Barclay’s has been sued by the state of New York on allegations relating to high-frequency trading. Stay tuned (or not).
For more on the HFT hearing click here.
For more on the Barclay’s Lawsuit click here.