Saturday, September 19, 2009

SEC Proposes Ban on Allowing Stock Flash Orders

By Jesse Westbrook

Sept. 17 (Bloomberg) -- The U.S. Securities and Exchange Commission proposed banning flash orders after lawmakers said the practice may give hedge funds an advantage over other investors.

SEC commissioners unanimously voted today to seek public comment on a rule barring exchanges and trading platforms from giving clients access to information about stock orders a fraction of a second before the market. The proposal requires a second vote at a later public meeting to become binding.

“Investors that have access only to information displayed as public quotes may be harmed if market participants are able to flash orders and avoid the need to make the orders publicly available,” Chairman Mary Schapiro said.

Democratic Senators Charles Schumer and Ted Kaufman urged the commission to halt the practice, arguing frequent traders use technology to profit from access to information not available to retail investors. Direct Edge Holdings LLC has relied on flash orders to take market share from NYSE Euronext.

Nasdaq OMX Group Inc. and Bats Global Markets voluntarily dropped flash orders last month after the practice drew scrutiny from Congress and the SEC. NYSE Euronext, operator of the world’s largest exchange, is the only exchange that didn’t offer flash orders.

“The SEC has done what we asked for,” Schumer said in a statement today. “This proposal will once and for all get rid of flash trading, which, if left untouched, could seriously undermine the fairness and transparency of our markets.”

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http://www.bloomberg.com/apps/news?pid=20601087&sid=aX_gc6Uuba98

1 comment:

  1. "So Much For High Frequency Trading" (from big picture blog)
    - The Securities and Exchange Commission has proposed halting high frequency and flash trading. In response, Nasdaq (and others) are now prohibiting flash orders. Supposedly, the NYSE is also considering banning the practice. This was a given. The real question that remains unanswered and demands a thorough investigation is this: WHAT EXCHANGE OFFICIALS APPROVED THIS? WHO BELIEVED THAT ALLOWING FAVORED FIRMS TO FRONT RUN OTHER INVESTORS WAS OK?

    http://www.ritholtz.com/blog/2009/09/so-much-for-high-frequency-trading/

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