Gregg Berman of the Securities and Exchange Commission has a message for those doubting that the regulator understands the U.S. stock market in the era of light-speed trading: You’re wrong.
Berman, one of the SEC’s top advisers on high-frequency firms, dark pools and other elements of computerized markets, is facing pressure to respond to claims his agency has failed to police exchanges and has permitted speed traders to put other investors at a disadvantage. Other authorities, including New York Attorney General Eric Schneiderman, have announced their own probes into the issue.
In remarks today at an Options Industry Conference near Austin, Texas, Berman aimed a rebuttal at critics and “maybe an attorney general” who might think “regulators are very behind the times and can’t keep up with market participants.”
Berman noted that the agency has a new surveillance system, known as Midas, that collects price data from all U.S. exchanges and that helps the SEC evaluate practices such as co-location, in which traders cut trading times by placing computers inside an exchange, and proprietary feeds, or streams of data send to clients faster than to public sources. The agency can’t be both ignorant of market behavior and have access to such expansive data.
“One of those statements has to be wrong,” Berman said. “Those both can’t be true at the same time.”
In April, Schneiderman subpoenaed trading firms including Chopper Trading LLC, Jump Trading LLC and Tower Research Capital LLC, according to a person familiar with the matter, who asked to not be named because the details of the investigation haven’t been made public.
The SEC hasn’t stood still. Yesterday, it announced a $4.5 million fine against the New York Stock Exchange and its sister markets for inadequately supervising trading. Among other infractions, regulators said NYSE, which was purchased by IntercontinentalExchange Group Inc. last year, had failed to establish guidelines for an account they use to trade in and out of securities when computer errors occur.
High-speed trading is facing unprecedented scrutiny following the March 31 publication of Michael Lewis’s book, “Flash Boys,” which argues that the practice has helped rig the U.S. stock market. In an April 15 speech in New York, Berman didn’t mention Lewis’s book directly but said the current debate is “too narrowly focused and myopic.”