Published September 20, 2012
The former head of the Securities and Exchange Commission, Harvey Pitt, says regulators need to take a tougher line on computerized trading in the stock market – and they need to do it quickly.
In an interview with Gerri Willis on the FOX Business Network, Pitt said the recent string of trading problems in the markets have added new urgency to the issue.
“I think it's significant that we are having all sorts of glitches with the software, and that is eroding investor confidence and driving individual investors out of our markets,” Pitt said. He also said too many trades are made and cancelled every day, and if market participants are going to be allowed to make stock trades they must be willing to go through with them.
“I think one of the things that you do is require that all trades have a legitimate purpose; you eliminate the trades that are effectively demi or false trades and require that all trades be followed through or that there be penalties associated with transactions that are canceled before they are ever executed.” Pitt said.
High-frequency trading accounts for two-thirds of all stock trades on U.S. exchanges, a figure that has exploded in recent years and that, according to Pitt, is cause for alarm.
“We have the flash crash. We have Nasdaq and Facebook and all of these problems that are steamrolling, and there has to be some orderly mechanism by which people use technology according to well-established rules,” he said.
Pitt said now is the time for regulators to step up and make changes necessary to prevent a meltdown in the markets:
“I'm not certain how well equipped the regulators are, but that is a budgetary issue. The technology exists, and the real requirement should be imposed by the exchanges and self regulators as well as by the SEC. We need some affirmative-action, and we need it quickly. “