Hensarling & Bachus Letter don’t “shoot the computers first and ask questions later”

WASHINGTON, DC – Congressman Jeb Hensarling (TX-05), Ranking Member of the House Financial Services Committee Subcommittee on Financial Institutions and Consumer Credit and FSC full committee Ranking Member Spencer Bachus (AL-06), today called upon House Financial Services Committee Chairman Barney Frank (MA-04) to conduct a hearing on high frequency trading.

The letter calling for the hearing noted that, “On May 11, 2010, the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises held a hearing to examine the market events of May 6, entitled ‘The Stock Market Plunge: What Happened and What is Next.’ The hearing provided the Committee with a great deal of speculation about what might have caused the May 6 events, but coming only days after the occurrence, it necessarily lacked concrete findings as to the cause of the tumultuous trading.  It has now been more than four months and Federal regulators have still been unable to explain precisely what triggered the events.

In their letter the Republican leaders of the House Financial Services Committee pointed out that SEC Chairman Mary Schapiro said recently, “…we have not waited for the report to begin taking steps to address weaknesses identified on May 6” and expressed concern that the SEC may be moving forward with some proposals without having the empirical evidence needed to ensure that the diagnosis fits the disease.  A “shoot the computers first and ask questions later” approach will not restore investor confidence or promote capital formation.

Hensarling, a longtime leader on the issue of high frequency trading, noted over a year ago that, “this is not a debate about who has access to what technology; it is a debate about the health, efficiency, and competitiveness of our markets.”  During the May 11, 2010 FSC hearing on the so-called “flash crash” Hensarling demanded and obtained a commitment from SEC Chairman Shapiro to make public the Commission’s findings once the “trigger or triggers” are identified.  Despite Shapiro’s subsequent comments that action is needed, to date, the Commission has not made any public determination of the trigger or triggers. On August 24, 2010 Hensarling and Bachus sent Shapiro a letter urging action based only on economic and empirical data, not political pressure.