More and more, algorithms are driving trading stategies. The SEC has jurisdiction over hedge funds and investment advisers. Finra does not. (Gira is executive vice president of Finra Market Regulation.) Yet they both oversee broker-dealers and coordinate their oversight by sharing information. For example, they look at how algorithms react to different market conditions and what data feeds the firms use.

The SEC examines the strategies that are touted in the marketing materials of investment advisers to make sure that they're not straying from those strategies. Of course, trading firms that are engaged in market manipulation rise to the top, di Florio says, such as momentum ignition, where the trader would be driving interest in a lightly traded stock from which he or she would profit through market manipulation.

In mid-August, Finra announced a case of spoofing: placing small limit orders at prices that improve the national best bid and offer (NBBO) for a security, allowing the trader to take advantage of the improved prices by executing larger orders at another firm with execution guarantees at the NBBO. Once the larger order is executed at the artificially inflated price, the trader cancels the initial limit orders.

In this particular instance, spoofing artificially impacted the price of a Nasdaq Stock Market security. The trader attempted to conceal his improper trading activity through the use of one of his 11 undisclosed outside brokerage accounts; he was fined $175,000 and is required to pay restitution of $171,740 for engaging in manipulative trading activity.

There are two major reasons these agencies are zeroing in on "algos" and high frequency trading strategies. One is the "flash crash" of May 6, 2010, after which SEC chairman Mary Schapiro said regulators were investigating whether traders manipulated prices, encouraged volatility or committed fraud by flooding the market with rapid-fire orders that were almost immediately canceled. The other is the SEC's new hires. Di Florio says the agency has brought in Ph.D.s in mathematics and experts in econometrics and computer science. One high-powered new hire is former hedge fund manager Rick Bookstaber. Di Florio says: "Yes, there's an irony - we either hear that the SEC lacks the expertise to do the job or, now that we've hired the expertise, there are complaints that we shouldn't do the job."

David Fuller's view The name of the SEC's new hired gun: "…former hedge fund manager Rick Bookstaber", is almost too good to be true.

We had Enron the musical. When we get HFT the musical, his name will surely be retained for a leading role.

I hope the SEC recruits more whistleblowers for its monitoring, but the best computer science brains will remain in HFT firms, because as Willie Sutton said: "That's where the money is."

Meanwhile, you can be sure there are more firms thinking about joining the HFT bandwagon than waiting for regulators to halt any illegal activities such as front running.