A New York watchdog was not shy to dispense some piece of advise to the troubled high-frequency traders and dark-pool operators who are currently subject of a probe over its industry practices. At a conference yesterday, Investor Protection Bureau head Chad Johnson said that as Attorney General Eric Schneiderman examines trade practices in the high-frequency trading industry, Wall Street should step up and suggest ways to change for the better. He also said that it would be a wrong move for Wall Street to dismiss the concerns about stock-market fairness as bad publicity or criticism.
Johnson said at the event hosted by Sandler O'Neill & Partners LP, "There's more here than a public-relations issue, and the discussion ought to focus on the substance. There are real issues to work through, and we should do that without focusing on these kinds of rhetorical points."
Schneiderman's office is currently working on a broad investigation on whether stock exchanges in the US and alternative venues provide high-frequency traders with improper advantages. Bloomberg said that his staff has already spoken with several exchange executives and has subpoenaed several high-frequency traders to aid in its investigation.
Johnson suggested in his remarks that Wall Street could look into the consistency of dark pool operations and observe their obligations to look after the interests of their investors. Moreover, Johnson also recommended Wall Street to look into broker-dealer deals for potential conflicts of interest.
"(I hope high-frequency trading firms and dark-pool operators) will engage in some soul-searching and step forward with ideas about how certain practices ought to be curtailed and reformed for the better. It's about time that this trend started to take hold. It's unclear why it's taken this long, but as we sit here today it's still only a small minority," Johnson said.
Several high-frequency trading firms have already called on Johnson's recommendations ahead of his remarks. Bloomberg said Investment Technology Group Inc, Liquidnet Holdings Inc., KCG Holdings Inc, Credit Suisse Group AG and Goldman Sachs Group Inc have already disclosed their Form ATS papers, which showed their rules of operation, in the past month.
