As calls for Wall Street reform have gotten louder, high-frequency traders—people who manage programs that can make thousands of trades per second—have upped their campaign contributions tremendously. The study, which was released today from Citizens for Responsibility and Ethics in Washington (CREW), is startling in its detail on high-frequency traders. In addition to reporting on campaign contributions, the report also focuses on lobbying:
“Since 2008, HFTs have spent over $10 million lobbying Congress, the Securities and Exchange Commission (SEC), and the Commodity Futures Trading Commission (CFTC), with a significant portion of the spending taking place as Congress debated financial regulatory reform.”
CREW Executive Director Melanie Sloan adds, “Despite all of the new regulations put forth in Dodd-Frank, these firms managed to come away unscathed. If lobbying and campaign contributions don’t directly buy influence in Washington, they certainly don’t hurt.”
See the full report, which includes these quotes from CREW Executive Director Melanie Sloan:
Unsurprisingly, high-frequency traders upped their campaign contributions and lobbying spending at the same time Congress was debating a new law to crack down on the excesses of Wall Street. Despite all of the new regulations put forth in Dodd-Frank, these firms managed to come away unscathed. If lobbying and campaign contributions don’t directly buy influence in Washington, they certainly don’t hurt …
Let’s hope all the money high frequency traders are flashing doesn’t blind Congress to the risk of flash crashes.
Also see this video of what a half second of high-frequency trading looks like:
This chart from CNN Money shows a sharp rise in computer automated trading, rising from about 25% of total trades in 2004 to about 65% in 2012.
CNN includes another startling statistic: “In 2005, the average time to execute a trade on the New York Stock Exchange was 10 seconds. By 2012, that time dropped to 8/10,000 of a second.”
This means that Wall Street in 2012 is a totally different world from Wall Street in 2002, and that things should proceed with enormous caution. Before the financial crisis Wall Street was assured that the possibility of a meltdown of 2008 proportions was extremely remote, a 1000-year flood. But the data they were relying on—especially data about credit derivatives—was only 10-20 years old. Not close to 1000. The data on automated trading is similarly very young.
Since we’ve already seen lots of cracks in the automated trading process, it’s something to watch carefully. An excerpt:
Traders on Wednesday said that a rogue algorithm repeatedly bought and sold millions of shares of companies like RadioShack, Best Buy, Bank of America and American Airlines, sending trading volume surging. While the trading firm involved blamed a “technology issue,” the company and regulators were still trying to understand what went wrong.
The debacle comes after the botched Facebook initial public offering on the Nasdaq exchange in May and the aborted effort in March by another exchange, BATS Global Markets, to bring its own stock public. The episodes, along with the flash crash of 2010 when the market lost trillions of dollars of value in minutes, have stoked suspicions that stocks are safe only for specialists, and sometimes not even for them.
“The machines have taken over, right?” said Patrick Healy, the chief executive of the Issuer Advisory Group, a capital markets consulting firm. “When events like this happen they just reaffirm that these aren’t investors, these are traders.”