A High-Frequency Tax: Paving the Way for a Fair Market, or a Roadblock to Efficiency?

As reported by Advanced Trading’s Justin Grant, as lawmakers and federal officials ponder fees for high-frequency traders in order to cover the steep cost of monitoring them, industry experts warn that an added tax could stifle the very segment that accounts for most of the nation’s equity volume.

In recent months, officials at the U.S. Securities and Exchange Comission (SEC) have weighed new fees that are likely to discourage certain lightning-quick trading techniques. The Wall Street Journal reported in May that U.S. Sen. Charles Schumer (D.-N.Y.) urged SEC chairwoman Mary Schapiro in a letter to tax high speed traders in order to pay for a system that can track all U.S. stock trades in real time.

Schapiro estimated last December a $2 billion price tag for this type of consolidated audit trail. Calls for a platform to facilitate such transparency reached a crescendo in the aftermath of the May 6, 2010, Flash Crash, for which regulators struggled for months to pinpoint the cause.

But even as increased surveillance has become a necessity in a marketplace where stock transactions often occur near the speed of light, forcing high-frequency traders to pay the lion’s share of regulatory costs ultimately will make trading more expensive across the board, market participants say.

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