According to Eric Hunsader, outspoken critic of high-frequency traders, he is the recipient of a whistleblower award from the Securities and Exchange Commission (SEC).
On January 15 the SEC revealed that it would pay “more than $700,000” to a whistleblower in return for “independent analysis as well as independent knowledge of securities law violations” which ultimately resulted in a $5 million fine for the New York Stock Exchange in 2012. The SEC is not allowed to reveal the identity of the whistleblower by law, writes Francine McKenna for MarketWatch.
SEC declines to comment on payment
There was no comment from SEC on the alleged payment to Hunsader. The SEC made the award for the first time under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which allows the body to reward a third party that analyzes possible violations of securities law.
According to Hunsader, his firm Nanex found out about the issue on 6 May 2010, the first day of the flash crash. Hunsader says that the tools currently in use at the SEC would be unlikely to spot a similar issue if it happened again. The financial body uses a market data analyzing tool called Midas.
“You could do it with Midas but not out of the box. You would really have to know what you’re doing. So, I would say no, they can’t do what we did,” he said.
Hunsader never thought he would be taken seriously
Hunsader maintains that he told the NYSE about the issue first, but was rebuffed. Outsiders often run into difficulties trying to tell regulators about an issue, but Hunsader thinks that an introduction from another regulator helped his cause.
“One reason why this worked with the SEC is that Andrei Kirilenko, who was at the CFTC at the time, the chief economist then, invited us in June 2010 to speak to them about what we found on the Flash Crash day. The SEC was there and Andrei introduced me. If I didn’t have that, this might have gone nowhere,” he said.
Hunsader was also pleased by the reaction of Mark Donohue, assistant director in the SEC’s Office of Compliance Inspections and Examinations at the time. “I feel a little bad because I never thought they were going to follow up. When the NYSE fine came out it really hit me,” he said.
The whistleblower will spend his money on college tuition for his four daughters.