SEC's High-Frequency Trading Probe—Good for Traders?

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Traders should welcome the Securities and Exchange Commission's plan to probe high-frequency trading, Themis Trading’s Joe Saluzzi said Friday.

“We’re excited to see regulators are taking this more seriously,” Saluzzi said on “The Kudlow Report.”

“There’s over 13 stocks exchanges and 40 dark pools all competing for this high-frequency flow, so it’s this web of interconnected market centers held together by glue, which is called high-frequency trading,” he said.

On a day when a software glitch roiled the BATS trading platform, the Wall Street Journal reported that the SEC would investigate rapid trading and the relationships between exchanges and high-frequency trading firms.

The probe, according to the Journal, was part of a broader examination into “less-transparent segments of the security markets.”

Saluzzi said that trading firms should welcome such an investigation because it could also lead them to be exonerated, which could help restore confidence.

No allegations of wrongdoing have been made by the SEC.

The structure of high-frequency trading systems, Saluzzi argued, could potentially allow leakage of information, which would hurt the retail investor. Other possible problems could include such things as momentum ignition or spoofing.

“The entire market structure broke a long time ago,” he said.

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