SEC Update: How Will Real-Time Data Affect HFT?

The Securities Exchange Commission (SEC) will use real-time data to monitor high-frequency trading. The commission will begin streaming real-time trade data into its headquarters this month.

But how will real-time data (in the hands of U.S. regulators) affect high-frequency trading?

Can Real-Time Correct Bad Data on HFT?

As it stands, arguments for HFT stand on a mountain of dubious or unverified analysis. Defenders of HFT routinely cite studies whose authors can be traced back to HFT funding; for example, James Angel, professor at Georgetown, later admitted that HFT data is a “big jumble” even though he published a report in favor of HFT for Knight Capital. This, of course, was prior to the flash crash earlier this year.

Or there’s the case of Christopher Culp, hired by Virtu Financial LLC, who wrote a study against transaction taxes, the Wall Street Journal reports.

On the other hand, aside from a landmark study from CFTC economist Andrei Kirilenko, U.S. regulators have put together scant data on the vices of HFT.

The virtue of real-time data (in the hands of U.S. regulators) could be to clarify once and for all the positive or deleterious effects of HFT.

SEC’s New Tech

The SEC’s new technology will reportedly cost $2.5 million in the first year. The adoption of new technology comes on the heels of an announcement by ASIC, the Australian Securities Investment Commission, that it will use high-frequency trading technologies in order to monitor HFTs.

Although the technology itself may help the SEC cover a lingering resources gap, it remains to be seen how the data will be used to monitor trading entities.

In a similar spirit, the U.S. Commodity and Futures Trading Commission (CFTC), recently issued a new rule requiring audio recordings of all relevant information leading to a transaction. In this case, it’s clear how the reporting content will square with future inquiries and investigations.

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