Hillary Clinton Wants To Crack Down On High-Speed Wall Street Trading

A tiny tax could curb a mountain of risk.
Melina Mara/The Washington Post

WASHINGTON -- Hillary Clinton on Thursday will propose a new tax on risky high-frequency trading, according to campaign sources familiar with her plan.

Big banks run thousands of high-frequency trades per second with cutting-edge computer technology, allowing them to profit handsomely from small price movements of stocks and other securities. The risks of such activity, however, are difficult to quantify. High-frequency trading has been cited as a culprit in the so-called Flash Crash of 2010, in which stocks mysteriously plunged only to recover within a few hours.

A small tax -- less than 1 percent of the transaction value -- could significantly alter the market for short-term trades. The Clinton campaign says it is trying to curb the influence of high-frequency trading on the broader markets as part of a regulatory plan to crack down on "dark pools" -- private trading forums obscured from the public.

"I think it's a good idea," said former House Financial Services Committee Chairman Barney Frank (D-Mass.), a staunch Clinton supporter.

The tax will be one part of Clinton's broader bank reform agenda, which was crafted with input from campaign CFO Gary Gensler, the campaign said. As chairman of the Commodities Futures Trading Commission, Gensler was regarded as one of the toughest Wall Street regulators in decades.

Clinton has been dogged by complaints from the progressive wing of the Democratic Party that she is too close to Wall Street, and financial reform hardliner Sen. Bernie Sanders (I-Vt.) has gained on her in the polls in recent months. She received hundreds of thousands of dollars in speaking fees from Goldman Sachs and other financial firms after she left the State Department. On the campaign trail and in a recent interview with Lena Dunham, Clinton has insisted that she will pursue aggressive bank accountability measures if she is elected president.

Clinton hasn't decided on a specific amount for the high-frequency trading tax and doesn't have any projections on its potential impact on the federal budget deficit. The point is not to generate revenue, campaign sources say, but to curb risky and abusive behavior on Wall Street. If the tax worked, risky trades would diminish. The result would be paltry funds for the U.S. Treasury, but a stronger financial foundation for the American economy.

HuffPost was not given access to the specific terms of the new rules curbing dark pools, nor to Clinton's broader financial platform.

Bank reform advocates have long called for a more comprehensive financial transactions tax, which would apply a small tax of less than 1 percent to all trades, not just those executed under microsecond algorithms. A broader tax, even at minuscule rates, could collect huge sums for the U.S. Treasury.

Frank had opposed a broader transactions tax during his tenure in Congress out of concerns it would give foreign banks an advantage over U.S. firms, he said. But the growth of high-frequency trading in the years since the 2008 crash has worried him.

"I think some restraints on the high-frequency trading makes sense," Frank said.

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