In this report, we assess pending high-frequency trading (HFT) regulatory developments, focusing on recent bank-regulatory discussions exploring concerns about HFT’s impact on numerous risk indices and pending rules.  These are, we are told, most germane to banking-agency work related to market-risk capital, operational risk (especially for banks active in ETFs and similar products), liquidity, financial-market-utility regulation and living wills.  No immediate policy action directly related to HFT is pending in any of these areas, but FedFin here notes key strategic-planning implications, as well as possible institution-specific examination concerns.  We also assess how HFT worries may affect the Volcker Rule, which regulators could use to address HFT concerns in banking organizations.  At this point, however, we think the agencies have their hands more than full with existing Volcker problems, leaving HFT for another day or, at the most, addressing it in the context of market-making.  At this point, we do not expect any of these deliberations to affect HFT review in the Congress, which a recent hearing (see Client Report HFT) shows is at a very preliminary stage.  However, if bank-regulatory concerns rise still higher and/or the SEC does not act, Congress could well engage on this issue in 2013.  Pending European Union decisions at the least to limit HFT or, perhaps, even to ban aspects of it will also pressure U.S. action. 

The full report is available to retainer clients.  To find out how you can sign up for the service, click here