Donations, lobbying by high-speed traders on the rise: report

Mon May 13, 2013 1:02pm EDT
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By Sarah N. Lynch

WASHINGTON (Reuters) - High-frequency trading firms increased their campaign contributions to federal lawmakers by 673 percent from the 2008 to the 2012 election cycle, according to a report that sheds light on their political connections in Washington and efforts to impact policymaking.

The report by the Washington-based nonprofit watchdog Citizens for Responsibility and Ethics in Washington (CREW) comes as U.S. financial market regulators mull whether new rules should be adopted to rein in high-speed traders, whom some critics accuse of harming smaller investors.

It compiles the campaign and lobbying records for 48 different firms like Citadel Investments, Getco, Knight Capital (KCG.N: Quote), Virtu Financial LLC and Tradeworx which engage in high-speed trading, a strategy that uses lightning-fast computers to search for ways to take advantage of tiny price moves in the marketplace.

It also identifies lawmakers who raked in the most campaign dollars over the course of three election cycles from high-frequency traders, with some of the biggest recipients from New York and Illinois, home to the country's two largest financial hubs.

The increases in campaign and lobbying spending marks a shift from just a few short years ago, when high-speed traders still were not well-known to the public and did not have much of a presence on Capitol Hill.

The Futures Industry Association sought to change that in 2010 with the creation of the FIA Principal Traders Group, a trade association representing the interests of high-speed firms.

The biggest event that got Washington more focused on high-speed trading was the May 6, 2010 "flash crash," in which the Dow plunged roughly 700 points before sharply rebounding.

In the aftermath of the "flash crash," regulators determined the plunge was not due to high-speed traders. The way those firms behaved during the event itself, however, helped spark a dialogue about whether new regulations were needed for high-speed trading firms.   Continued...

A trader looks at his screen on the floor of the New York Stock Exchange May 8, 2013. REUTERS/Lucas Jackson