Time to charge high-frequency traders for cancelled orders?

It's no secret that the traditional buy-side has some issues with high-frequency traders. The SEC is taking a close look at the whole panoply of issues. One of which is obvious: cancelled orders.

High-frequency trading outfits send out and cancel orders at a much higher rate than other firms. According to Wall Street Letter, as many as 90 percent of orders from these firms are canceled, in part because of strategies that "ping" the market looking for liquidity or trying to find out the direction of large orders. This matter has bubbled up to the SEC and Congress. Some mutual funds and hedge funds have whipped it up a bit, bent on making it an issue.

Some buy-side players think these canceled orders can create volatility based on nothing. So will we see a proposal requiring firms to pay for their cancelled orders? I'm not sure how the logistics would work, but the idea makes some sense if an optimal price could be found. The idea is not to punish people but rather to discourage the practice en masse.

For more:
- here's the article

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