SEC sheds light on 'Midas' algo oversight system

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Not only did SEC Chairman Elisse Walter push for greater software testing in her speech at The American University's Washington College of Law, she also shed light on the regulator's new algorithmic trading technology, code-named Midas. 

Walter addressed high-frequency trading regulation in her speech "Harnessing Tomorrow's Technology For Today's Investors and Markets." 

One member of the audience, an AU alum and financial blogger, reported his impressions of the speech. He believes that greater HFT oversight is coming -- and soon. Among the reasons he writes:

The SEC is in favor of regulating HFT and will likely justify regulation through prior events such as the flash crash coupled with data provided by their new algorithm technology "Midas."

The new software, dubbed "Midas" by the SEC, was developed by a HFT programmer and will allow the SEC to track all market orders to buy or sell, regardless of whether those orders are filled or cancelled. Midas will allow the SEC to pinpoint specific trading techniques often implemented by HFT firms and possibly link the trades to subsequent "flash crashes" or market manipulation. Specifically, the SEC will likely use Midas technology to pinpoint and examine excessive cancellations of large buy/sell orders and certain buy/sell orders which only remain open for fractions of a second.

Conversely, Chairman Walter said the Midas software will also be used to determine the legitimacy of the claim that HFT increases market liquidity -- the most common defense to the trading practice.

The financial industry has been whistling past the graveyard and telling itself that the SEC and other regulatory bodies didn't have the experience or expertise to manage and regulate the market. If this report is true and Midas works as it is billed, those days might be over. 

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