How Much Does A Seat At The Regulatory Roundtable Cost?
We have known for years that HFT lobbyists have been all over Washington DC trying to protect their industry. But thanks to a new report just issued by the Citizens For Responsibility And Ethics In Washington (CREW), we now know just how much money that they have spent. The report states that since 2008 high frequency trading firms spent over $10 million lobbying Congress, the SEC and the CFTC. In addition, HFT’s donated over $16 million to federal candidates, PACs and super Pacs during the 2012 election cycle.
These numbers do not surprise us at all when you consider the billions of dollars that HFT has scalped from investors over the past few years. A few million spent on lobbying and political donations is a small price to pay to protect the virtual cash machine that the HFT’s have built.
What does the HFT lobbying money buy? It buys influence. It allows HFT firms to get a seat at the many roundtables that have been arranged by regulators and politicians over the past few years. It allows HFT firms to sponsor academic papers. And it allows HFT firms to spread the message that “everything is fine and markets have never operated more efficiently” to politicians and regulators.
The HFT crowd likes to stay on message. They all tend to say the same thing at the same time. No doubt their lobbying money helps to keep the message consistent. In addition to the “we add liquidity and shrink spreads” message, they are also fond of pushing the “kill switch” and “circuit breaker” fixes. One new message that we started hearing lately is that the market needs a “broad, holistic review”. In addition to HFT firms using this message, we are hearing it more often from exchange executives and SEC commissioners. Just yesterday, SEC Commissioner Gallagher stated :
“We have to do a holistic review. Nobody is arguing against it.”
While holistic reviews are a great idea, they take time and they cost money. And those are two things that the SEC does not seem to have. Every day that market structure reform is delayed is another day the HFT industry gets to profit at the expense of traditional investors and another day that investor confidence fails to rise. The last thing the HFT lobby wants is change and they know nothing slows the change process down more than a “holistic review”. That lobbying money has been very well spent.
We highly encourage you to read the entire CREW report but here are some additional facts from the report that we would like to highlight:
– CREW analyzed contributions from these HFT firms: Attis Capital, Automated Trading Desk, Citadel Investments, Hudson River Trading, Jane Street Capital, Knight Capital, Lime Brokerage, Renaissance Technologies, SXP Analytics, Tradebot Systems, Tradelink, Tradeworx, Virtu Financial, and Wolverine Trading. They also included financial information from the 34 members of the FIA Principal Traders Group.
– While the numbers are extremely high, they would have been much higher had CREW decided to include financial information from some bulge bracket brokers that engage in HFT.
– The report notes that, “A small number of companies are responsible for the majority of lobbying spending. Citadel Investments, for instance, spent more on lobbying than any other high frequency trading company, $3 million between 2008 and 2012, representing nearly 29 percent of the industry’s total. The three next largest spenders on lobbying, Renaissance Technologies, Getco, and Hudson River Trading LLC, were responsible for a combined 38 percent of lobbying spending.”
– Six of the top 15 congressional recipients of contributions from HFTs during the 2008, 2010, and 2012 cycles are from either Illinois or New York, both key financial centers. Sen. Mark Kirk (R- IL) received more contributions from HFTs than any other member of Congress, taking in $125,800. Sen. Chuck Schumer (D-NY), a member of both the Senate Finance Committee and the Subcommittee on Securities, Insurance, and Investment of the Senate Banking, Housing, and Urban Affairs Committee, received $77,200, making him the second largest recipient.
– HFT’s are non-partisan. Liberal group Priorities USA Action was the largest recipient, raking in $6 million from just two donors, Renaissance Technologies founder James Simons and Stephen Robert, who previously headed a Renaissance Technologies subsidiary. Conservative group American Crossroads was the second largest recipient, pulling in roughly $4.16 million from just four people: Michael J. Goodwin, Jr. of Bluefin Companies, Kenneth Griffin of Citadel Investment Group, W. Ed Bosarge of Quantlab Financial, and Robert Mercer of Renaissance Technologies.