The Senate has been concerned that brokers and stock exchanges might be using obscure incentives and fees to promote high-speed trading. The brokers and stock exchanges faced questioning Tuesday about those practices as senators examined whether they harm investors and pose a conflict of interest.
Under the scrutiny were the executives from Bats Global Markets Inc., Intercontinental Exchange Inc. owner of the New York Stock Exchange and TD Ameritrade Corp. They are being investigated for rebate fee payments for orders that have promoted faster trading since 1990s.
A critic of high-speed trading told the Senate panel Tuesday that inadequate transparency, increased complexity and conflicts of interests have made investors who trade U.S. stocks to have unfair deal.
Bradley Katsuyama, said they have discovered that investors have been disadvantaged in the way stock markets have been set up. Bradley Katsuyama is one of the six witnesses who testified at the hearing. He is the head of an alternative trading venue.
Other witnesses included Joseph Ratterman, chief executive of BATS, Thomas Farley, president of NYSE Group, Steven Quirk, senior vice president at TD Ameritrade, Joseph Brennan, head of the global equity group at the Vanguard Group Inc and Robert Battalio, a professor at the University of Notre Dame.
The Senate Permanent Subcommittee is known for its highly-publicized investigations of Wall Street following the 2008 credit crisis. It scheduled this hearing amid concerns that the stock markets and the regulators are in need of change.
Sen. Carl Levin, D-Mich., the panel’s chairman said that even though the U.S. is in an era of high-speed trading, he was troubled, as are many, by some of its hallmarks. He cited market instability, co-location and conflict of interest. He called the hearing to scrutinize conflicts of interest in equity markets that he said threatens to damage investors and to wear down the trust and confidence on which the free markets depend.
A person familiar with this matter said that Eric Schneiderman, the New York attorney general, had written an order in April to high-speed traders including Tower Research Capital LLC, Chopper Trading LLC and Jump Trading LLC to attend court and give evidence. This is part of a probe into automated trading. The CFTC and the SEC are also investigating whether the high-speed traders are benefiting in any way from their access to data or other incentives.
Mary Jo White, chair of the Securities and Exchange Commission (SEC) said in her speech on June 9 that the commission has been weighing changes to the U.S. equity markets structure since 2009 and is considering its most drastic plan yet for reining high-speed trading. The plan is aimed at increasing registration of proprietary traders and to ensure that brokers disclose all their transactions. .
Joe Ratterman, who is the CEO of alternative trading venue BATS Global Markets also agreed that the U.S. trading markets need some changes, but they are neither “rigged” nor broken, instead they are considered to be the most efficient, liquid, transparent and competitive in the world.