In an attempt to fend off some pending regulations and proposed tax hikes, high-speed trading firms and exchanges are throwing more money at lobbyists in hopes of advancing their views on the upcoming changes.
In 2011 and 2012, high-speed trading firms averaged spending $2.3 million on lobbying, more than double the amounts that were spent between 2008 and 2010.
One of the proposals that high-speed firms are hoping to shoot down is a proposed 3-cent tax on each $100 transaction in stocks, bonds and other assets. Last month Senators Tom Harkin (D. Iowa), and Peter DeFazio (D., Ore) submitted the bill, which is opposed by Republicans.
There are also indications that the industry is about to come under greater regulation, which it is trying to avoid. For example, the SEC has been looking into the extent that traders are able to manipulate the market by acting as both the buyer and seller or securities in order to either drive a price higher or lower to suit their needs. The results of its investigation could result in lower trading volumes, which will have a material impact on high-speed trading firms' bottom lines.
Technology has advanced to the point where high speed trading is the norm, and as a result the market has become much more liquid. While some regulation is certainly needed, too much regulation could send traders looking for different places to make their wagers, and high-speed firms and exchanges do not want this to happen… thus the increase in lobbying.
While high-speed trading firms are opposed to additional regulation, there are some powerful players that are on the other side of the fence. T. Rowe Price (TROW) and Royal Bank of Canada have both come out in their favor of tighter regulations.
The two financial firms are part of a group that has expressed to Congress and the SEC that high-frequency trading is disrupting the overall market, and making it difficult to trade efficiently.
Throwing more money into lobbying may help high-speed firms avoid some of the regulations that are coming their way, but not all. The biggest reason to expect stiffer regulations is the expected appointment of Mary Jo White to the position of SEC Chairman. White is expected to gain Senate approval to become the next chairman, and her views on high-frequency trading are very clear.
In testimony before Congress, White said high-frequency trading raises “many questions and concerns.”
Even Thomas Peterffy, who was one of the pioneers of high-frequency trading has said that it has progressed to a point of “no social value“. He believes that a regulatory structure to slow down trading is necessary.
Change is coming, and high-speed trading firms can throw as much money as they want at the problem, but it seems inevitable, and necessary, that additional regulations are on the way.
Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.