A trader in the S&P 500 futures pit at the CME Group. Executives from the CME Group and other exchanges were set Thursday morning to appear before a U.S. Senate Banking subcommittee. (AP Photo/M. Spencer Green)

Reuters | U.S. exchanges defended the high-speed trading firms they say keep
markets liquid and functioning, with one suggesting incentives to
encourage their participation at stressful times such as the mysterious
May 6 market plunge.

Executives from Nasdaq OMX Group Inc, CME Group Inc and NYSE Euronext
were set Thursday morning to appear before a U.S. Senate Banking
subcommittee, the second time since the severe market plunge that they
will have faced lawmakers looking for answers.

Regulators should consider “creating better incentives to provide liquidity during periods of market stress,” Nasdaq OMX Executive Vice President Eric Noll said in prepared remarks.

Terry Duffy, CME Group’s executive chairman, said high-frequency trading is an important part of the market and warned against a crackdown, as some have suggested.

U.S. limits or regulatory burdens on these traders “may encourage high-frequency traders to shift the trading they currently conduct in the United States to Europe and other foreign jurisdictions that are already well-equipped to handle additional growth in both equities and futures,” Duffy said.

High-frequency traders use lightening-fast algorithms to make markets and take advantage of tiny imbalances, and are involved in an estimated 60 percent of all U.S. stock trading volume. Some firms stopped trading during the May 6 plunge, where the Dow Jones Industrial average lost some 700 points in minutes before sharply rebounding.

NYSE Euronext Chief Operating Officer Larry Leibowitz said the plunge highlights the need to reexamine the commitments of market makers.