SEC May Curb 'Flash Trading.' Goldman Says It's Not In The Game : Planet Money Regulators are taking steps to rein in the practice of "flash trading," in which high-frequency traders get a quick peek at competitors' orders before they're completed. Goldman Sachs, meanwhile, tells its clients there's not flash trading there.
NPR logo SEC May Curb 'Flash Trading.' Goldman Says It's Not In The Game

SEC May Curb 'Flash Trading.' Goldman Says It's Not In The Game

Goldman Sachs has told its clients it doesn't engage in "flash trading," in which high-frequency traders get a quick peek at competitors' stock orders before they're completed. The news came first from Zero Hedge, which got hold of a letter sent today by Goldman. Money quote:

"The most significant challenge ahead is for the regulatory framework to keep current with the rapid pace of innovation in the marketplace."

SEC Chairwoman Mary Schapiro said today that she has asked her staff to explore "an approach that can be quickly implemented to eliminate the inequity that results from flash orders." Schapiro wrote that she's concerned about "dark pools" where traders buy and sell large numbers of shares anonymously.

Schapiro's statement came after Sen. Charles Schumer (D-NY), told the world she had promised him a ban on flash trading.

In its letter, Goldman acknowledges using high-frequency trading but writes that its systems don't see "client order flow."

You can trace this particular hubbub back through the arrest last month of Goldman Sachs software developer Sergey Aleynikov for allegedly stealing proprietary software. At the time, Bloomberg columnist Jonathen Weil wrote that Goldman Sachs had lost its "grip on its doomsday machine." A prosecutor in the case told the court:

"The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways."

On July 23, New York Times writer (and Planet Money pal) Charles Duhigg published an expose on high-frequency trading, "Stock Traders Find Speed Pays, in Milliseconds." Duhigg wrote:

Goldman acknowledges that it profits from high-frequency trading, but disputes that it has an unfair advantage.

Goldman says only about 1 percent of its total revenue this year has come from high-frequency trading.