Exchanges Balk at Forcing Market Maker Obligations Onto HFTs
Traders Magazine Online News, October 29, 2010
Should high-frequency traders be required to assume market maker obligations? In the wake of the "flash crash," and charges of desertion by liquidity providers, the Securities and Exchange Commission is mulling the imposition of affirmative and negative market maker obligations on HFTs. The regulator is concerned that the group, which provides between 40 percent and 50 percent of all liquidity in the market, shirked its duties to support stock prices during the May 6 downdraft, and should be asked to do more. That could mean forcing HFTs--essentially proprietary traders without customers--to register as market makers with the exchanges where they hold membership.
A handful already do, but most don’t. For their part, the exchanges are largely ambivalent. They recognize the benefits to their markets, but are hesitant to speak out in favor of a draft. The New York Stock Exchange, operated by NYSE Euronext, is the exchange most committed to market maker support, as seen by its designated market maker and supplemental liquidity provider programs. Still, NYSE Euronext is opposed to forcing HFTs to assume the obligations of market makers. “If someone is just a very large part of the market or doing a lot of trading, but is not necessarily getting any of the benefits of a market maker, then they should not be required to register as a market maker,” said Joe Mecane, executive vice president and chief administrative officer for U.S. markets at NYSE Euronext.
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