March 18, 2014

Attorney General Eric T. Schneiderman spoke to a packed auditorium at the New York Law School today on "insider trading 2.0." He called for tougher regulation and support in curbing the unfair advances given to high frequency trading firms, arguing they contribute little value to the market and operate at the expense of traditional investors.

A decade ago high frequency trading was barely more than a concept, but in that quick passage of time many examples of favoritism by institutions towards algo-traders have been questioned by regulatory authorities.

These services include special premium options like higher bandwidth, millisecond to full second advantages, and access to ultra fast connection cables and collocation benefits. Schneiderman takes the position that these benefits help guarantee lower risk and higher returns, and distort the market for other traders.

In some cases the Attorney General's office has stepped in to eliminate the advantage. In one example last fall, the office obtained an agreement from Thomson Reuters to end sales of a two second advanced viewing of survey results, only offered at a premium to high frequency traders.

By law, the information must be made available to all at the same time. Schneiderman believes this practice continues in other avenues. Without the passage of a sweeping legislation, regulators can only continue to seek case by case agreements.

“Rather than curbing the worst threats posed by high-frequency traders, our markets are becoming too focused on catering to them,” said Attorney General Schneiderman in his speech. “I am committed to cracking down on fundamentally unfair – and potentially illegal – arrangements that give elite groups of traders early access to market-moving information at the expense of the rest of the market. We call it Insider Trading 2.0, and it is one of the greatest threats to public confidence in the markets. It’s long past time that we focus on structural reforms to help eliminate the unfair advantages enjoyed by high-frequency traders.”

Becca is Senior Editor for Wall Street & Technology. Becca is writing in-depth news articles with a focus on big data and compliance in the capital markets. Becca regularly ...