With a new Securities and Exchange Commission Chair Elisse Walter in office, Rep. Ed Markey (D-Mass.) has called on the commission to consider utilizing the Market Reform Act of 1990 to combat high-frequency trading in the equities markets.
The Market Reform Act, which Rep. Markey authored in 1990, gives the commission authority “to prohibit or limit practices which result in extraordinary levels of volatility.”
In a January 18 letter addressed to Walter and her predecessor Mary L. Schapiro, Rep. Markey described HFT as “a clear and present danger to the stability and safety of our markets,” and stated that its use should be curtailed immediately.
He reminded Walter and Schapiro that while HFT is a relatively new phenomenon, “earlier forms of computerized trading have been in effect for 25 years and have previously been shown to have the potential to contribute to excessive and artificial levels of volatile.”
In the wake of the October 19, 1987 Crash, Markey and several other House Members introduced a package of reforms that eventually became the Market Reform Act of 1990 and gave the SEC authority “to prohibit or limit practices which result in extraordinary levels of volatility.” Markey said the same provisions that were aimed at curbing abuses in program trading, could be used to address HFT.
He said the act gave the commission the ability:
- To place limitations on practices that affect market volatility.
- To prescribe means of preventing manipulation of price levels
- To prohibit trading practices that contribute to volatility
Markey urged the Commission, as it considers any future potential rulemaking on HFT, to use the Market Reform Act of 1990 to rein the practice in. He requested that Walter respond to his letter by February 7, 2013.
