Lobbying and political campaign contributions in the US from firms engaged in high-frequency trading (HFT) increased almost eight-fold between 2008 and 2012 as the practice grew and regulators sought to better control the trading, according to a study by the Citizens for Responsibility and Ethics in Washington (CREW).
The study of 48 companies, including Knight Capital, Citadel, Tradeworx, Attis Capital and others, shows campaign contributions soared 673 percent from a combined total of about $2.1 mn in the 2008 US election cycle to $16.1 mn in the latest election cycle, CREW says. The firms also spent a combined total of $10 mn on efforts to lobby the US Congress, the SEC and the Commodity Futures Trading Commission since 2008.
‘Unsurprisingly, high-frequency traders upped their campaign contributions and lobbying spending at the same time Congress was debating a new law to crack down on the excesses of Wall Street,’ says Melanie Sloan, executive director of CREW, in a press release. ’Despite all of the new regulations put forth in Dodd-Frank, these firms managed to come away unscathed. If lobbying and campaign contributions don’t directly buy influence in Washington, they certainly don’t hurt.’
CREW says lobbying expenditures enjoyed their biggest increase between 2009 and 2010 as Congress debated provisions of the Dodd-Frank Act to better regulate the financial sector. Lobbying expenses of the 48 firms in the study more than doubled from $1 mn in 2009 to $2.4 mn in 2010. In 2012 the firms spent a combined $2.7 mn on political lobbying.
The report does not estimate the impact of the lobbying by HFT firms but notes that six of the top 15 recipients of campaign contributions in Congress were from the major financial centers of Illinois or New York. The study also notes that some of the politicians who received contributions from the firms later urged caution in regulating the trading practice.
The SEC has been studying ways to better regulate HFT since the so-called flash crash of 2011 that sent the Dow Jones Industrial Average plunging more than 1,000 points in less than 20 minutes.
Earlier this year, the SEC proposed a series of rules that would oblige exchanges, clearing agencies and alternative trading systems to establish procedures to ensure the ‘capacity, integrity, resilience and security’ of their technology, allow SEC inspections to ensure compliance, notify the SEC whenever systems issues occur and conduct annual reviews of their systems.
