articlePara — html?

High-frequency trading and other innovations have reduced costs and made the stock market function better than ever, but even Chicago hedge fund executive Ken Griffin, who pioneered and benefited from many of those changes, sees the need for more regulation.

articlePara — html?

Bloomberg photo Ken Griffin

In just his second appearance at a congressional hearing, Mr. Griffin, the founder and CEO of Citadel LLC, told a Senate Banking Committee session today that from his vantage point, the U.S. equity markets are the fairest, most transparent, resilient and competitive markets in the world.

The value of one Citadel high-frequency trading vehicle reportedly quadrupled in recent years, but Mr. Griffin told the panel that since January 2009 it has mainly focused on more traditional buying of stocks for longer periods or selling them short. The business of high-frequency trading became less profitable after more firms started doing the same thing.

But Sen. Mark Kirk, R-Ill. who has expressed doubts that more regulation of high-frequency trading is needed, tried to make the point that the book had no input from one of the experts in the field.

Mr. Kirk had only one question for Mr. Griffin. Holding up a copy of the book, the senator wanted him to describe what he had told the Flash Boys author about high-frequency trading. I’ve never spoken to Michael Lewis, he replied.

He never called you? the senator asked again. He did not, replied Mr. Griffin.

Pressed by another senator whether Congress should ban high-frequency trading, Mr. Griffin responded, Absolutely not.

‘THOUGHTFUL REGULATION’

Sen. Elizabeth Warren, D-Mass. repeatedly asked how buying a stock and selling it a few seconds later makes it any easier for investors to find willing buyers and sellers in the market, when those orders could be matched electronically without the intervention of high-frequency traders. But she didn’t get a real answer from Mr. Griffin or the other experts who testified.

However, Mr. Griffin pointed out that high-frequency traders serve a useful purpose by quickly acting on small discrepancies between options based on a group of stocks and the underlying stocks themselves. Somebody has to keep the New York markets in line with the markets in Chicago, he said. It all happens at an extremely low cost in the context of our capital markets.

But he said off-exchange trading should be more regulated to make sure investors are treated equally and have the same amount of information about prices and volume, whether a trade is executed on an exchange or one of about 60 alternative trading systems, sometimes known as dark pools, set up by big banks and other large investors.

Some critics, such as CME Group Inc. Chairman Terrence Duffy, have called for elimination of dark pools.

Mr. Griffin also said stockbrokers should be required to publicly report data on how well they execute trades so their performance can be measured.

We’ve been (for) thoughtful regulation, he said after the hearing, and we want to continue to be thoughtful.