MFA Urges Against High-Frequency Trading Restrictions

Sep 15 2010 | 2:45am ET

The U.S. hedge fund lobby has weighed in against new rules that would impose market-maker requirements on high-frequency traders.

The Managed Funds Association warned that the proposal to force computerized traders and others with the “best access” to markets to trade during periods of market volatility would have the opposite effect to that intended: making markets more liquid. Some have suggested that high-frequency traders made May 6’s market plunge worse by pulling out of the markets.

“We respectfully urge that you proceed cautiously and introduce changes that are supported by empirical data,” Stuart Kaswell, general counsel of the MFA, wrote to the Securities and Exchange Commission and Commodity Futures Trading Commission. “Changes not supported by empirical data and directed at preventing rare market dislocations, could further harm investors.”

The group also warned the SEC against new rules designed to prevent high-frequency traders from manipulating the markets.

“Proposals to expand the use of speed bumps, delay trading or set maximum execution speeds would cause greater harm to investors by increasing trading and execution costs,” Kaswell wrote.

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