The U.S.' top securities watchdog is looking at whether some high-frequency trading firms have used their close links to computerized stock exchanges to gain an unfair advantage over other investors, the Wall Street Journal said.
The Securities and Exchange Commission is focusing on computer-driven trading platforms of exchanges, including BATS Global Markets Inc., the paper said, citing people familiar with matter.
Specifically, it will examine whether firms collude to limit competition or manipulate markets, it quoted a person with knowledge of the matter as saying.
Regulators have sent letters to a number of high-speed firms requesting information about their trading activities and communications with exchanges, the paper said, adding that the probe is still in its early stages and there is no suggestion of wrongdoing by trading firms or exchanges.
BATS declined to comment to the Journal. SEC and BATS could not immediately be reached for comment by Reuters outside regular U.S. business hours.
BATS is selling stock to the public for the first time, today. The firm is selling 6.3 million shares at $16 each.
High-frequency firms rely on rapid-fire trades and short-term strategies to earn profits on fleeting price imbalances.
The SEC probe stems from a broad look at computer trading that regulators initiated after the "flash crash" in May 2010, when stocks fell and rebounded sharply within minutes, following glitches in computer-trading systems, the Journal said.
BATS Global Markets, in its filing to go public, said that “unlike traditional market centers, we are a technology company at our core.’’
The key to its competitive advances is its BATS technology platform, which it puts behind its U.S. and foreign trading venues, ranging from BATS BYX and BZX here to BATS Europe and, soon, Chi-X Europe.
Here are some of the statistics BATS included in its S-1 registration statement filed with the Securities and Exchange Commission to bolster that contention:
- Our trading platform has experienced very low downtime, as demonstrated by the fact that for the years ended December 31, 2010 and 2011, BZX was immediately and automatically accessible 99.999% and 99.940% of the time, respectively. For the year ended December 31, 2011, BYX and BZX (options) were immediately and automatically accessible 99.998% and 99.949% of the time, respectively. We believe that this reliability gives our customers an additional incentive to use our platform to mitigate trade execution risk, especially in times of extreme market volatility.
- Our average latency on BZX, which measures the time that it takes for us to process an order message, has decreased 84.4% from over 930 microseconds in January 2007 to approximately 145 microseconds for the year ended December 31, 2011.
- For the year ended December 31, 2011, BZX processed approximately 29,000 order messages per second on average. At times, BZX has processed as many as 300,000 order messages per second, and in testing, our platform has demonstrated its ability to process more than one million order messages per second on a sustained basis.
- In order to continuously implement new enhancements to our platform, new releases of software are deployed multiple times per month. With the exception of Chi-X Europe which will be transitioned to our platform during 2012, we use the same technology platform across all of our markets, so that new releases can be deployed simultaneously in all of our markets.
- Significant Operating Leverage. The scalability of our technology platform and the efficiency of our operations allow us to continue to grow with limited additional capital investment. We use technology to leverage our products and employees across multiple asset classes and geographies. As a result, we are able to operate with lower overhead than many incumbent exchanges. With fewer than 200 employees globally as of December 31, 2011, we have captured substantial market share from traditional exchanges in the United States and Europe while maintaining substantially lower fixed costs.
(Reporting by Sakthi Prasad; Editing by Edwina Gibbs. Securities Technology Monitor contributed to this report.)