Stock Room

[PanicButton]

SEC to Explore Changes in Flash Trading
* AUGUST 4, 2009, 1:40 P.M. ET

http://online.wsj.com/article/SB124940289965505053.html

By SARAH N. LYNCH

WASHINGTON -- The Securities and Exchange Commission may clamp down on a practice that some critics say gives an unfair advantage to some traders by giving them an early look at buy and sell orders.

Flash trading, which routes stock trades through private liquidity pools before being sent to other exchanges for filing, has come under increasing fire from critics in Congress and elsewhere in recent weeks.

SEC Chairman Mary Schapiro said Tuesday that she has instructed SEC staff to explore "an approach that can be quickly implemented to eliminate the inequity that results from flash orders."

"Under the rule-making process, such a proposal to eliminate the ability to flash orders would need to be approved by the commission and be open to public comment," she said.

Most major U.S. stock exchanges have said they would not protest if the SEC moves to curb some of these practices.

Sen. Charles Schumer (D., N.Y.) said Tuesday that Ms. Schapiro personally promised him she will seek to ban flash trading.
[Charles Schumer]

Charles Schumer

In a statement, Sen. Schumer said he spoke with Ms. Schapiro, who informed him of an imminent ban during a telephone call Monday. The ban will come as part of a broader look at dark pools -- electronic trading venues where money managers trade large blocks of shares anonymously -- and high-frequency trading, he said.

"We salute the SEC for moving forward with this ban that will restore integrity to the markets. The agency is absolutely making the right call by stepping up and ending this unfair practice," Sen. Schumer said. "It is also important to make sure flash orders aren't just the tip of an iceberg lurking in the dark reaches of the market," he added.

Ms. Schapiro first announced in a speech in June that she planned to explore possible new regulations for dark pools.

She said Tuesday that she believes flash orders can disadvantage some investors, and staff are reviewing flash orders by both exchanges and electronic trading systems as well as dark pools.

Write to Sarah N. Lynch at [e-mail]