U.S. Senator Wants Broad SEC Market Review: dark-pools, flashes, high frequency!

Discussion in 'Wall St. News' started by crgarcia, Aug 27, 2009.

  1. U.S. Senator Wants Broad SEC Market Review
    By Reuters
    Tuesday, August 25, 2009

    NEW YORK (Reuters)—Sen. Ted Kaufman (D-Del.) on Monday [Aug. 24] asked U.S. regulators to undertake a comprehensive review of several "questionable" developments in the structure of capital markets, the latest lawmaker to weigh in on so-called dark pools, flashes, and high-frequency trading.

    In a letter to Securities and Exchange Chairman Mary Schapiro, the Mr. Kaufman wrote that rule changes in recent decades had the effect of unintentionally favoring the most sophisticated investors at the expense of others.

    Mr. Kaufman, a long-time adviser to Vice President and former Delaware Senator Joe Biden, added that "increased liquidity"—the availability of bids and offers for stocks—is now valued more than "fair execution of trades for all investors."

    The letter comes as the SEC decides whether to clamp down on some order types and trading venues, and follows a letter from Sen. Charles Schumer (D-N.Y.) late last month warning that unfair markets are harming investor confidence.

    "I am concerned that questionable practices threaten to further erode investor confidence in our financial markets and that our understanding and regulatory capacity have not kept pace with those changes," Mr. Kaufman wrote in his letter. "Markets have become so fragmented—and the rise of high-frequency trading that can execute trades in milliseconds has been so rapid—that the SEC should review and quantify the costs and benefits of these market structure developments to all investors."

    High-frequency trading firms such as banks, hedge funds, and independent proprietary shops use computers and complex algorithms to make lightning-quick trades in small amounts of stock, intending to capitalize on small price variations. More than 60% of all U.S. equity volume is estimated to involve high-frequency traders. Any curbs on high-frequency trading could drive down trading volumes, boost volatility, and hit the revenue of financial firms and exchange operators.

    Mr. Kaufman wrote that liquidity rebates, flash orders, co-location and direct market access were questionable practices, and called for a regulatory review that would examine each separately.

    Exchanges and other trading venues such as dark pools, which execute orders anonymously, rebate traders who provide liquidity while charging those who take liquidity. Some exchanges also "flash" orders to a specific group of participants before rerouting them to the wider market.

    Co-location is when trading firms place their computers next to the exchanges' trading engines, to shave valuable microseconds from execution times. Direct market access, or "sponsored access," is when registered brokers allow high-frequency firms to trade, unfettered, under their name.

    Ms. Schapiro said in June that the SEC was giving "a serious look" at taking action on dark pools, and said earlier this month it was crafting a plan to "eliminate the inequity that results from flash orders." Previous Reuters Story

    SEC spokesman John Nester declined to comment on Mr. Kaufman's letter but said, "We share the Senator's interest in market structure issues."

    Mr. Kaufman also criticized the SEC for allowing Nasdaq OMX's Nasdaq Stock Market and at BATS Exchange to begin offering flash orders in May. The exchanges have since said they will voluntarily stop the practice starting next month. Rival alternative venue Direct Edge has said it will continue to offer flashes.

    By Jonathan Spicer

  2. ....will be shaken down for campaign contributions and then the "whole thing" will go away. Trade on! :cool:
  3. These fucking idiots at the SEC can't make out an illegal manipulative trading scheme from the foreskin on their cocks.
  4. What they meant to say:

    "There must be a way to manipulate or appear to manipulate the market upwards to gain more votes."

    "What is good is bad. Increased liquidity does not reduce costs for investors. No, really."

    "Goldie Sacks and ilk are telling us they would like to see the competition eliminated, independent traders, little firms and such vermin."