Today, Congressman Stephen F. Lynch (D-MA) and Ranking Member Maxine Waters (D-CA), two prominent members of the Financial Services Committee, issued a statement regarding the announcement that Direct Edge will pay a $14 million fine to settle charges by the Securities and Exchange Commission that they failed to disclose how some order types, created at the behest of high frequency trading firms, were being employed on their exchanges. Lynch and Waters applauded the SEC for taking action against the exchange for this fraudulent behavior, which catered to high-frequency trading firms to the detriment of average investors.
The SEC investigation found that the two exchanges offered three variations of “price sliding” order types, rather than the single “price sliding” order type listed within the exchanges’ rules. Certain members of the exchange, including some high-frequency trading firms, were privy to information on how the three variations of order types operated, while retail and institutional investors were not. Lynch and Waters believe it is crucial that all investors have equal access to the rules governing trading on the exchange.
“It is unacceptable to have high frequency trading firms wielding undue influence over exchanges. I am pleased that the Securities and Exchange Commission is finally acknowledging the abusive practice of complex special order types that cater to high frequency trading firms to the detriment of everyday investors. While the fine is an important first step in ensuring fair trading on our public exchanges, we must continue to hold exchanges accountable,” said Congressman Stephen F. Lynch.
“More than three years after being alerted by a whistleblower, the SEC has finally taken action against potentially abusive and manipulative order types that favor high-frequency traders over ordinary investors at our nation’s exchanges. Our capital markets are built on the premise that they are fair and transparent for all investors. As this case illustrates, providing certain customers with an inside track on how trades can be best executed destroys that premise. I hope the SEC continues to examine the use of order types at exchanges and prohibits those that are not in the public interest,” said Congresswoman Maxine Waters, Ranking Member of the Financial Services Committee.