At a recent event at the NYU Law School, New York Attorney General Eric Schneiderman called for reforms to stop practices that “give elite groups of traders access to market-making information at the expense of the rest of the market.” He was critical of high frequency traders’ impact on the capital markets, saying that while providing liquidity to the market they also increase market instability. One of the practices that his office is focusing on is exchanges that sell high frequency trading firms direct access to their data centers. This co-location reduces the time it takes to get market information by milliseconds, enough for traders to take advantage. Attorney General Schneiderman also cited the damage that high frequency trading causes institutional investors, with their practices causing funds and other large investors to undertake “complicated and expensive trading strategies to conceal orders,” including routing orders through dark pools and other unregulated trading venues.
Attorney General Schneiderman called for regulators to work together to address market structure issues. He pledged his office’s support, stating “[s]o my office is going to continue to shine a light on unseemly practices in the markets in this area, and in others, that cater to high frequency traders at the expense of other investors. This is going to include critically examining the strategies used by HFTs against the rest of the investing public and the benefits they get out of services offered to them by the exchanges and other players.”