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Regulator to consider rules on high-frequency trading firms

Posted On: Nov. 17, 2021 12:11 PM CST

Gary Gensler

(Reuters) – The U.S. Securities and Exchange Commission chairman, seeking to improve transparency in the world's biggest bond market, has asked staff for new rules to ensure principal trading firms are properly registered as dealers.

Speaking at the New York Federal Reserve, Gary Gensler said the rules would likely mandate PTFs, also known as high-frequency trading firms, to report their trades to FINRA's Trade Reporting and Compliance Engine.

The SEC, as the U.S. market's regulator, should require that such trading firms comply with capital and record-keeping rules and be subject to periodic exams much like equities and corporate bond markets, he said.

Regulators have long argued that high-frequency trading, a computerized strategy that can move billions of dollars in fractions of a second, carries risks in the U.S. government bond market that threaten the ability of the market to function, as well as the ability of investors to fairly value assets.

Critics say high-frequency trading can cause excessive price swings in the bond market, which has faced declines in liquidity.

"It's time for us to close the regulatory gap and ensure we have regulatory oversight over PTFs and others engaged in the regular business of buying and selling in this market," Mr. Gensler said.

Mr. Gensler said registering these trading platforms can help promote resiliency and greater access in the Treasury market.

Agency rules would also consider "whether all members of any registered clearing agency in this market should be required to bring in both sides of all of their trades - cash and repurchase agreement; how we might enhance or strengthen the Commission's Covered Clearing Agency Rules; and whether we can enable broader access to clearing, possibly including through responsible use of sponsored and correspondence clearing."