The high frequency topic is all the rage these days and with good reason. Free market capitalism is dependent on free and fair markets.

Are our equity markets free and fair these days? By my definition they are not.

With people on both sides of this topic voicing their strongly held opinions, more and more of the onus is placed on those regulating the markets to see that the playing field is level for all participants. I think that is a huge part of the problem and wrote as much the other day in asserting, “The fact that the FBI states that it is working in concert with the CFTC, SEC, and FINRA in this investigation should be a cause of very real concern.”

A recent commentary in Crain’s Business highlights this very point: 

In September 2012, the SEC said it found that the NYSE gave certain customers who used computer-driven trading strategies an early look at market prices. The glimpses lasted anywhere from single-digit milliseconds to several seconds. The agency added that the NYSE “did not take adequate steps to comply” with the rule barring early release of the data.

Wow, that sounds like a serious infraction. Several seconds is an eternity in the world of lightning-fast trading, plenty of time to jump ahead of others and force them to pay higher prices for stocks they want to buy.

Yes, plenty of time indeed to front run.

Yet however you want to describe how the SEC handled the matter, the term “crack down” doesn’t come to mind.

The agency fined the NYSE $5 million and ordered it to hire an independent consultant. It didn’t require an admission of wrong-doing. The NYSE said at the time that it fixed the identified problems and “the timing differentials stemmed from technology issues, not from intentional wrongdoing by the exchange or any of its personnel.”

No wrong doing and nothing intentional. No, of course not.

What’s that you say? Did somebody in the back of the room say “blowjob?”

In light of recent attention given high-speed trading, might not the SEC start taking a harder line? Don’t bet on it, said Sal Arnuk, co-founder of Themis Trading in Chatham, N.J.

“Doing so would be an admission that the SEC screwed up” on the recent NYSE case, he said.

Is it possible that the SEC could screw up, or is it more likely that the SEC wrote the NYSE a minor ticket, as meter maids are wont to do, and sent the NYSE on its way to continue just such practices or close iterations thereof?

Perhaps things will change. The SEC has said it is “conducting a comprehensive data-driven analysis” of high-speed trading and other market matters. The SEC division that oversees exchanges recently named a veteran regulator as its new chief, Steven Luparello. He’s the third person to hold the job in the past two years.

Another new sheriff on the job. Appointed to head this division less than two months ago, what can we learn about Mr. Luparello? From the SEC’s own web site:

Mr. Luparello comes to the SEC from the law firm of Wilmer Hale, where he has been a partner in its Washington, D.C. office, specializing in broker-dealer compliance and regulation, securities litigation, and enforcement.  Mr. Luparello joined Wilmer Hale after a 16-year career at the Financial Industry Regulatory Authority (FINRA) and its predecessor, the National Association of Securities Dealers (NASD), where he most recently served as Vice Chairman of FINRA.

Can you say “Captured regulators revolving door meter maids in bed with wall street” three times fast?

Watch your wallets folks, and as always . . . navigate accordingly.

Larry Doyle