Regulators Want HFT Computer Secrets

BOSTON (TheStreet) -- It appears regulators are tired of chasing individuals and are now targeting computers.

Both the Securities and Exchange Commission and the Financial Industry Regulatory Authority, or FINRA, are investigating suspicious market activity by high-frequency trading firms, according to a report late Thursday by Reuters.

The securities regulators are requesting that high-frequency trading, or HFT, firms hand over the details of their trading secrets and, in some rare cases, the firms' proprietary computer codes.

"It's not a fishing expedition or educational exercise. It's because there's something that's troubling us in the marketplace," Tom Gira, executive vice president of FINRA's market regulation unit, told Reuters.

HFT has come under intense scrutiny in the wake of the market "flash crash" in May 2010. Traders use computer algorithms to execute thousands of trades per second, reaping razor-thin profits on small price imbalances in the market. Traders argue that HFT plays a critical role in providing liquidity and can actually help calm volatile markets.

Reuters reports that the SEC has begun making requests for trading data from HFT firms to examine compliance by financial firms, citing agency officials and outside lawyers. The SEC requests are not necessarily related to wrong-doing, however, although the algo-related requests are being made to ensure market manipulation is not occuring, according to the report.

-- Written by Robert Holmes in Boston.

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