High-Frequency Trades Are ‘Intense Focus’ of SEC, White Says

U.S. markets “aren’t rigged” and regulators are seriously considering allegations of unfairness due to high-frequency traders, Securities and Exchange Commission Chair Mary Jo White said today.

The agency is taking “the right approach, a very thorough review of all the issues,” that is “data driven, disciplined,” White told members of the SEC’s Investor Advisory Committee. “But it has intense focus by us and the staff.”

The remarks followed claims outlined in a recent book by Michael Lewis, “Flash Boys,” in which he writes that that high-frequency traders can jump in front of other investors and cause them to pay higher prices for shares.

“The markets aren’t rigged,” White said in response to a question by the AFL-CIO’s Damon Silvers. “We do have the strongest markets in the world.”

White said that high-frequency trading has provided some benefits to equity markets, including easing the buying and selling of shares.

“There are a number of market metrics, that most agree with, that would certainly strongly suggest that high-frequency traders have added liquidity and some price advantages,” White said.

Gallagher Agrees

SEC Commissioner Daniel M. Gallagher said he agreed with the agency’s approach to reviewing high-frequency traders. Gallagher suggested the regulator shouldn’t leap to react to Lewis’s book, because fixed-income trading is still largely conducted as it was when Lewis’s first book, “Liar’s Poker,” came out in 1989.

“‘Liar’s Poker’ has been out there since the 1980s and not a lot has changed,” Gallagher said. “If we are setting our agenda by Michael Lewis books, we have to take them as we see them.”

In response, Silvers said Lewis’s earlier book chronicled an era associated with the rise of junk bonds and the fall of investment banks such as Drexel Burnham Lambert Inc..

“If you don’t mind, commissioner, let me point out to you that the individuals involved in structuring the bond market during the ‘Liar’s Poker’ era were convicted of felonies, and the firms went bankrupt,” Silvers said.

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