SEC Moves Closer To Banning Flash Orders

NEW YORK — The Securities and Exchange Commission is moving toward banning a trading practice that gives some brokerages a split-second advantage in buying or selling stocks.

SEC Chairwoman Mary Schapiro said in a statement Tuesday that the agency is working to create a rule to ban the trades known as flash orders.

Flash orders give certain members of exchanges including Nasdaq, Direct Edge and BATS the ability to buy and sell order information for milliseconds before that information is made public. High-speed computer software can take advantage of that brief period to allow those members to get better prices and profits.

"I have asked the staff for an approach that can be quickly implemented to eliminate the inequity that results from flash orders," Schapiro said. Any proposal to eliminate the orders would still have to be approved by the entire commission and be open to public comment before being implemented.

Sen. Charles Schumer, D-N.Y., a critic of the orders, said in a statement that Schapiro personally assured him the SEC would ban the practice. Last month, Schumer sent a letter to the SEC urging it to eliminate flash orders and said that if it didn't, he would write legislation to do so.

Banning flash orders is more about the perception of fairness than any practical change in trading, said Sang Lee, a managing partner at Aite Group. He noted flash orders only make up around 2 percent or 3 percent of total trading volume.

The move to ban flash orders would not have a major impact on the market share of exchanges, Lee said. The long-term trend of established exchanges such as New York Stock Exchange losing business to newer participants like Direct Edge and BATS will continue, regardless of whether they can attract customers through flash order programs, he said.

Exchanges have become increasingly competitive as they try to add more clients. However, that has led to price cuts exchanges charge to customers in recent quarters, which have pressured margins.

In fact, BATS spokesman Randy Williams said the company began offering flash orders because of increasing competition. Williams said BATS supports any review of flash orders.

"We're ready to discuss it if the SEC asks about it," Williams said.

Direct Edge's CEO William O'Brien also said in a statement his company would welcome any SEC review of flash orders.

A spokeswoman for Nasdaq did not immediately return requests for comment on the potential ban.

Comments

[Erdgeist]

Boy, don't you just love the stock market. Things never seem to change with it comes to the market's traditional lawlessness. Back in Holland in the 1600s the stock market fleeced naive merchants and widows the slow old fashioned way—now it is in milliseconds!

Pssst...SE­C Chairwoman Mary Schapiro, let's just get rid of the damn market. It's just gambling.

[mybookface]

The disconnect between the problems facing mainstreet and Washington keep widening. For the past 6 month's we're nothign but talk of regulation, but zero action. What a joke.
good articles..­. http://www.iamned.com

[vippy]

I believe that is why oil is so high right now despite the fact we are swimming in oil supply.
But our dear congress is invested in it and they won't do much to hinder their getting richer.

[Sundialsvc4]

Oh, how nice. You suggest that you're actually going to do your job?

"Well, m'lady, we shall be the judges of that. You are, as you know, 'appointed­.' But I have a mouse, and we shall now see who will win. If I click this mouse, that is to say, if I check this little box on my screen right now, then $50 million in completely untraceable cash will be transferred into your 'little secret' as well as that of certain Senators and Congressmen. Otherwise, they will not get the money. And you do understand, Ms. Schapiro, just how angry they can become when they do not get 'fed.' Heh heh. Fed by the Fed. Oh, now that's funny. Well, maybe not that funny ... just a little joke ... but I digress. Everyone has a 'little secret,' and pigs are very fierce animals who do not like their troughs to become empty."

[userw014]

So, they're (proposing) banning Flash trading because it's unfair to the financial institutions that aren't located close enough to the electronic exchanges to submit orders within milliseconds.

That reasoning is insane.

That's like banning Formula-1 racing in crowded shopping Malls because not everyone can afford a Formula-1.

Flash Trading should be banned for the following reasons:
(*) It further encourages treating investment as gambling
(*) It allows financial disasters that might have otherwise taken months to occur in minutes.
(*) It puts the financial system at an exagerated risk to some minor hardware, software, or configuration flaw.

I swear, the more I hear about reasoning like this from the SEC and other "financial experts", the more I want to ban EVERYONE currently involved in finance from the practice for life.

[themodernleader]

If we don't fix our crooked Wall Street and other finances, we will not be in ownership or control of an economic syatem to fix.

[Chris]

How is it crooked if it is legal?

[jsarets]

Because the laws are crooked, too?

[jojony]

Clearly based on the markets performance of late, the Banks are running scared.

[ErnestineBass]

Ummm...wha­t about "flash trading" on the NYSE?

Oh, that's right...th­e ruling board members of the NYSE make money whever Goldman Sachs makes money, don't they?

The ONLY way to put a stop to such blatant corruption is to STOP INVESTING IN THE STOCK MARKET!

[Chris]

Good idea. Let's tank everyones retirment funds, union pensions and other investment accounts.

[marinade]

Duh. Why were they ever allowed in the first place?

[FreedomCorpse]

Its all about "perception" .... that's the problem with the entire financial system and why it is broken and corrupt and unworthy of anyone's trust. The only people who 'trust' the system are the insiders who profit massively from its corruption.

[FreedomCorpse]

The SEC.... a total facade of respectability and trustworthiness, just like the CFTC.

[angry expat]

Wall Street - you're busted!

The more we work the phone lines and email in boxes of our Senators and Congresspeople, the more we'll get good results like this.

[jojony]

Wow, please seek therapy.

[4KixAfter6]

Sounds like faster insider trading. Maybe it should fall uder the same rules.

[Hank007]

We should just do what the rest if the rich, industrialised nations do: charge a .02% tax/surcharge on all market transactions. We could pay off our deficit, pay for health care, and pretty much anything else we wanted in no times, given the trillions of dollars we would generate. Of course, the US has never expected the masses to benefit from their economy being used as a casino.

[gavrielle]

What! Tax the rich? Are you mad? They need that money to stay one step up above the rabble!

[Chris]

Yeah those union pension that are heavily invested in the markets should be given an additional surcharge.

[fuelie]

Flash Orders are just another example of the rich, powerful, and connected helping the rich to get richer at the expense of everyone else. Pure greed.

[truth seeker]

It's not just greed, it's breaking the rules. The people doing this will try to explain their scam as "the ability to buy and sell order information for milliseconds before that information is made public". What they are doing is watching order information and when an order is seen that will cause an up/down-tick they get in front of it. It's called "frontrunning" and it's illegal. I have been testing this for months. There is NO doubt ...