Flash Trade Ban by SEC

Flash Trade Ban by SEC

Flash Trade to be Banned By the SEC

The controversial "flash trade" will be banned by the SEC, according to its chair Mary Shapiro. A flash trade has been criticized for giving an advantage to some brokerages over other traders. Some traders are given advance information about an order before it is relayed to the market. The proposed ban has received support from Nasdaq and Bats and NY Senator Charles Schumer has led the charge to outlaw flash trading. This move may signal a larger push against "high frequency" trading which some have estimated accounts for 70% of trading volume, although flash trades make up a relatively small portion of high frequency trades.

A ban would reverse decisions since at least 2004, when the SEC first approved the systems at the Boston Options Exchange. Nasdaq OMX Group Inc., Bats Global Markets, Direct Edge Holdings LLC and the CBOE Stock Exchange give information to their clients about orders for a fraction of a second before the trades are routed to rival platforms. The technique is meant to give investors another opportunity to complete a transaction.

NYSE Euronext, the world’s largest owner of stock exchanges, as well as brokerages Morgan Stanley and Getco LLC have said the practice may result in investors getting worse prices.

Schapiro said any proposal to ban the transactions would require approval from SEC commissioners and public comment. SEC rulemaking is usually a two-step process. The agency’s staff proposes a regulation, and commissioners vote to solicit public feedback for between 30 and 90 days. Once the comment period ends, commissioners vote on whether to make the rule binding. The SEC can speed up the process by issuing temporary rules. Read More..

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