Bloomberg: High-Frequency Traders Lobby, Donate to Head Off U.S. Rules

Written by admin on November 9th, 2010

Bloomberg reports on the lobbying activities of high frequency trading firms, who have quadrupled their spending this year.

Bloomberg

The SEC and members of Congress already were examining the business when the May 6 market plunge temporarily wiped out $862 billion of share value in 20 minutes. Although an investigation by regulators didn’t put direct blame on high-frequency firms, the volatility of stock prices focused more attention in Washington on their operations.

“Those with powerful computers are able to use them to their own financial advantage,” Senator Carl Levin, a Michigan Democrat, said Sept. 28 on the Senate floor. “Those who exploit our markets to the detriment of long-term investors and the real economy will not be able to do so without a battle from the Senate.”

In addition to writing proposed rules, the SEC’s enforcement division is investigating whether computer-driven traders have manipulated prices. “You have to be concerned every time there’s a lack of transparency into a market practice, particularly one like high-frequency trading that is so prevalent,” Robert Khuzami, the SEC’s enforcement chief, said in an interview.

The scrutiny has spurred the industry to seek friends in Washington. Managers and employees of 21 of the largest computerized-trading firms, including Getco, Allston Trading LLC and Infinium Capital Management LLC gave about $490,000 for this year’s congressional elections, compared with just over $100,000 in 2006, according to federal election reports filed through Oct. 15.

In 2000, when some of the firms didn’t yet exist, contributions totaled about $10,000.

Another advocate for electronic trading has been Representative Jeb Hensarling, a Texas Republican who sits on the House Financial Services Committee.

Hensarling and Representative Spencer Bachus, the Alabama Republican in line to become chairman of the financial services panel, advised Schapiro in an Aug. 24 letter to get a better understanding of what caused the crash before “assigning blame to algorithmic or high-frequency trading firms.”

Hensarling received $4,800 last month from Suhas Daftuar and Alexander Morcos, two managing directors of Hudson River Trading LLC, a New York high-frequency trading firm. Hudson River Trading didn’t respond to a request for comment.

In an interview, Hensarling said he’s concerned the SEC is acting “precipitously” in singling out high-frequency trading. “I’m not necessarily saying they are wrong, but the accountability function of Congress is to ensure there is justification for what you’re doing,” he said.

Donations to Democrats

Other politicians who were the biggest recipients of donations from high-frequency traders include Mark Kirk, a Republican who won a U.S. Senate seat in Illinois, Senator Charles Schumer, a New York Democrat, Representative Melissa Bean, an Illinois Democrat, and Robin Carnahan, a Democrat who lost her race for a U.S. Senate seat from Missouri.

 

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