"Officially, on a paper document, we do not want to use that word," the source said. "The focus that Michael Lewis got on HFT, and the focus that the word HFT has gotten in the last couple years , people are nervous about using the term."
But it turns out that regulators did not invent the term "Principal Trading Firm."
High-frequency traders did.
In March 2010, a group of high-frequency trading firms affiliated with the futures industry trade association FIA sat down to decide what to call the industry segment most of the public knew as high-frequency traders. "It was a group of businesses coming together trying to decide what we call ourselves," said Jim Overdahl, a partner at Delta Strategy Group in Washington and an advisor to the trade association's "Principal Traders Group," which devised the term. "I think it was a genuine attempt to come up with a descriptive name."
That's because the firms included tend to invest their own principal and not have clients as do traditional banks and hedge funds, Overdahl said. Current members of the group include some of the leading names in high-frequency trading, including Allston Trading, Citadel Securities, DRW Holdings, Jump Trading, and others, according to FIA's website.
Those firms are pleased that federal regulators have begun using their term. Overdahl said "principal trading firm" is simply a more accurate term to describe the industry than "high frequency traders," and it separates the group from more traditional hedge funds and banks. "It should be welcome in this discussion to recognize that this is a distinct group of market participants," Overdahl said.
In the end, regulators adopted the industry group's own term for itself.
Or, you could say: it was the HFT lobby, FTW.