WASHINGTON (Reuters) - The chair of the U.S. Securities and Exchange Commission on Wednesday raised concerns that automated trading could hurt some investors, and laid out the regulator's approach to the fast-evolving practice of using algorithms and software to make trading decisions.
"The Commission should identify and address those specific elements of the algorithmic trading environment that may be working against investors, rather than for them," said Mary Jo White in a speech to the Security Traders Association.
She pointed to the “maker-taker” fee structure, where exchanges charge brokers access fees that they later rebate, as a potential area for conflicts of interest between brokers and their customers. She said that in the very near future the three-member commission will consider a regulatory recommendation based on its pilot program that lowered the ceilings on the access fees.
White also said SEC staff is developing a rule to enhance recordkeeping requirements on trading algorithms while still protecting proprietary trading information.
Also, she said, it will soon ramp up work on a rule addressing disruptive trading.
Earlier this year, the federal government released a report on Treasury market volatility on Oct. 15, 2014 that found short-term traders had created an imbalance of buy orders which led to a sudden spike in prices. The report shows how trading practices could work against interests of investors and issuers, and suggests traders follow destabilizing strategies when the market is weak, White said.
Now SEC is analyzing data on trading in equity markets during volatile periods, and has noticed "similar trading behavior among some high-frequency trading firms, raising similar stability concerns," she said.
White said that a regulatory response to potentially disruptive trading strategies should also not interfere with practices that benefit investors and market efficiency.
"Before the commission settles on a proposal for an anti-disruptive trading rule, I have asked the SEC staff to assemble their work on disruptive trading practices for publication in the near future for the public to consider and comment on," White said.