High-Frequency Traders Give Thumbs Up to SEC Proposal
Traders Magazine Online News, April 26, 2010
A proposed rule that would require high-frequency traders to code their tickets so their trading patterns can be tracked by regulators appears to have strong support among high-frequency traders themselves.
Chris Bartlett, Nobilis Capital
"It's important for the regulators to have the information they need to understand the trading markets," said Chris Bartlett, a high-frequency trader at New York-based Nobilis Capital.
The rule in question is the so-called large trader rule, which would require high frequency and other large volume traders to code trade tickets with an identifier. And according to Bartlett, the rule would be a good thing because it would help the regulator better understand the industry.
The thinking behind the proposed rule is to examine the increasing role that large firms and traders are playing in the trading markets. According to market estimates, between 50 and 70 percent of total trading volume is done by large or high frequency traders, thus the interest.
"Normally when the SEC is trying to implement rules and regulations they are often extensive, expensive or disruptive," Bartlett said. "But in this case they have a good idea that can be implemented within the existing regulatory framework without any real undue burden."
The SEC defined "large trader" broadly as either a firm or individual whose transactions in exchange-listed securities equal or exceed two million shares or $20 million during any calendar day, or 20 million shares or $200 million during any calendar month.
If passed, the new Rule 13h-1 and Form 13H, would fall under Section 13(h) of the Securities Exchange Act of 1934. To register, a large trader must file Form 13H with the SEC, and update its Form 13H at least annually, and on a quarterly basis if necessary to correct information that becomes inaccurate. The large trader must also provide, on request, additional descriptive information that would allow the SEC to further identify the large trader and all accounts through which the large trader trades.
Once the SEC gets the 13H, it will issue the large trader a unique large trader identification number--LTID. The LTID would be used for all accounts over which the large trader directly or indirectly controls or exercises investment discretion, across broker-dealers, thereby providing the SEC with a full picture of each large trader's activity in NMS securities.
Manoj Narang, chief executive officer and chief strategist at Tradeworx, said that despite the increased paperwork the large trader rule would bring, it won't negatively impact his trading business, which is what he cares about most.
"I agree that the large trader rule could take pressure off high-frequency firms, which I feel exists for no good reason," Narang said. "This proposal doesn't have any far reaching consequences in terms of equity market structure. Therefore, it's a perfectly fine maneuver for the SEC to do."
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