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) -- High frequency trading -- the use of computer-driven, algorithmic-based techniques to execute trades in a matter of microseconds -- is drawing scrutiny, but Wall Street argues regulators may be focusing on the wrong issues.

Regulators are investigating whether high frequency trading exacerbates volatility since high frequency traders, unlike market makers on the NYSE, are not obligated to provide liquidity and can leave the market at any moment.

But panelists at the SIFMA Market Structure Conference said that a many of the allegations and statistics used by regulators were based on something that had not been defined.

"The term is widely used. Yet you never find a definition for it," said Chris Concannon, partner at Virtu Financial. "People have stats based on a term that has not been defined. How do you know that HFT volume in the US moved up to 63% without knowing what that term even means?" he asked.

High frequency trading is estimated to account for at least half of U.S. stock trading volume, according to Tabb. Another report by Aite group suggests it accounts for as much as 73%.

The technique has attracted a lot of scrutiny from institutional investors and regulators. Institutional investors allege that the nano-second profit taking approach of these traders increase the cost of trading. More than two-thirds of traders at leading asset management firms around the world are concerned about the impact of high frequency trading on the equities market, according to a survey by Liquidnet, the global institutional marketplace.

These are trading tools that are widely used by hedge funds, market makers and proprietary desks of investment banks such as

Goldman Sachs

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Virtu Financial is often referred to a high frequency trading firm. But Concannon says he struggles with the definition. "The brand we like to fit under is electronic market making," he said. "we need to craft better terms," he added.

Other panelists also seemed reluctant to define themselves as high frequency traders. Adam Nunes of Hudson River Trading, said his firm, founded by mathematicians, considered itself a "quantitative trading" outfit.

"There is this desire to categorize something and measure it," said Nunes. "I don't see what the goal is. People make up numbers and send them out and that gets published over and over again."

It was a theme echoed later in the day by

NYSE Euronext


COO Larry Leibowitz. "We have lumped anyone who does algorithmic trading into high frequency because so much of what algorithm trading does is high frequency," he said.

He added later that there was a lot of allegations being made without proof and that regulators needed to identify bad actors in the market and take action in order to preserve market integrity.

At an earlier panel, Gregg Berman, senior advisor to the director of the SEC's Division of Trading and Markets, said there was no "clear, identifiable" link between high-frequency trading and the volatility that was experienced in the global market in August. He called the debate over HFT's role, "high frequency theorizing", the

Wall Street Journal



Securities and Exchange Commission's

plans to develop an advanced market surveillance system and step up collection of data from large traders would go a long way in identifying the real market manipulators and put doubts about high-frequency trading techniques to rest, experts concluded at the end of the discussion.

--Written by Shanthi Bharatwaj in New York

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Shanthi Bharatwaj


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