Regulators are taking a closer look at whether high-frequency trading firms might represent a threat to the stability of financial markets, the New York Times DealBook blog reported yesterday. The Financial Industry Regulatory Authority (FINRA), an industry-financed regulator, sent letters to 10 high-speed trading firms this week, asking them for more information about their trading programs and the steps they have in place to avert “market disruptions.” The letter sent out this week is focused primarily on the steps the firms take to test their programs, or algorithms, before they begin trading with them, and the preparations they take to deal with unexpected trading problems. Regulators have been focused on these issues since one trading firm, Knight Capital, lost nearly $500 million, and nearly went bankrupt, after its trading programs went haywire last August.
