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HFT Firms Flood DC with Donor Dollars

While lawmakers and regulators take a long hard look at high-frequency trading, the firms that trade near the speed of light are donating money like never before.

What a coincidence. Just as regulators and politicians weigh in on new rules for high-frequency trading, those very same firms start sending cash in Washington DC.

According to findings released by Washington-based nonprofit watchdog Citizens for Responsibility and Ethics in Washington (CREW), high-frequency trading firms increased their campaign contributions to federal lawmakers by 673 percent from the 2008 to the 2012 election cycle. That whopper of a number comes from a review of campaign and lobbying records for 48 different firms that include Citadel Investments, Getco, Knight Capital, Virtu Financial and Tradeworx - all firms that trade at sub-second speeds to beat the competition.

[The next High Frequency Trading method just might be via microwaves - but is it ready for prime time?]

In a further coincidence, the lawmakers who reaped the most of the HFT bucks hail from New York and Illinois, which are the hubs for high-frequency trading.

Let's look at some data points:

  • $10 million - the amount that HFT firms spent to lobby Congress, the SEC and the CFTC since 2008, which is the start of the financial crisis.
  • $16.1 million - the amount of campaign contributions for the 2012 election cycle, compared to:
  • $2.1 million - the amount of campaign contributions for the 2008 election cycle.
  • $13 million - the amount Renaissance Technologies donated over the past three election cycles. (While the hedge fund is not considered a high-speed trading firm, CREW said it included the fund in its report because it is known to deploy some "high-frequency strategies", according to FoxBusiness.
  • $1.1 million - the amount high-speed trading firm Quantab Financial donated in 2012 compared to a mere $8,300 in 2008.
  • Illinois Republican Senator Mark Kirk and New York Democratic Senator Charles Schumer - the lawmakers who have received the most money.
  • [Big Brother or Big Data: Is your Bloomberg terminal spying on you and your traders?]

    Commenting on the report, entitled "Rise of the Machines," the head of CREW says that this is business as usual in the halls of Congress. "An industry that is not a big player in Washington suddenly sees potential regulatory action coming down the pipe, and low and behold, it starts to make campaign contributions and having lobbying expenditures," says Melanie Sloan, the executive director of CREW. "That is what we see here with the huge increases."

    While there is nothing wrong with an industry donating enormous amounts of money in the post Citizens United ruling from the Supreme Court, the jump in donations reveal how concerned the HFT firms are these days. With some spectacular trading debacles from the Flash Crash to assorted rogue algorithms, the HFT firms realize that they have a target on their back.

    Now we’ll have to see if HFT firms are buying a senator or some time before a new trading speed limit is set.

    Stay tuned. Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio

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