Business

NYSE boss backs ending rebates to high-frequency traders

High-frequency trading could get a lot less lucrative.

As pressure from regulators and lawmakers mounts over the controversial Wall Street practice, the president of one large stock exchange on Tuesday said he was willing to work to halt one of the key underpinnings of high-frequency trading — the payment of maker-taker rebates.

“At an industry level, we are seeking support for the elimination of maker-taker pricing and the use of rebates,” Thomas Farley, president of the New York Stock Exchange, told a Senate committee Tuesday.

“Broad adoption of this policy would reduce the conflicts inherent in such pricing schema,” he said.

High-frequency trading, where firms relay stock buy and sell orders from investors to the various exchanges, often jumping ahead of customers to pocket a penny of profit on millions of shares traded, has come under fire in recent months for rigging the markets.

With the attention, the Securities and Exchange Commission has taken steps to reel in HFT.

On Tuesday, the Senate’s Permanent Subcommittee on Investigations, headed by Sen. Carl Levin (D-Mich.), one of Washington’s biggest Wall Street critics, jumped into the fray.

“It’s an era in which millions of trade orders are placed, and then canceled, in a single second, raising the question of whether much of what we call the market is in fact an illusion,” Levin said in prepared remarks.

The committee was the highest-profile look at how HFT works since the March publication of “Flash Boys,” the Michael Lewis book that claims the markets are rigged.

The hearing brought together Brad Katsuyama, the book’s hero and CEO of IEX, an exchange that deliberately slows down the super-fast traders, and Joseph Ratterman, CEO of BATS, an exchange that Katsuyama has claimed rigs the markets.

Levin claims maker-taker pricing can enrich brokers who trade based on their interests rather than for their own clients.

That sentiment was echoed by Joseph Brennan, president at The Vanguard Group, owner of the world’s largest mutual fund.

Ratterman of BATS said that maker-taker should stay in place — but not because that’s how they make their money.

“My answer stems from my concern over the potential benefits in spread reduction that maker-taker may have produced over the last 10 or 15 years,” he said, “not for any commercial purpose about the way we run our exchange.”

Some Wall Street watchers advocate for less secrecy with HFT firms as a way to lessen any appearance of conflicts of interest.

“Enhanced transparency will undoubtedly mitigate the appearance of conflict, as is the case in the securities world 90 percent of the time,” said Marc LoPresti, founding partner at LoPresti Law Group in New York.

“Until you’re going to bring the specialists back to the floor, I don’t know what Plan B is.”