1. U.S. regulators propose ban on "flash"
trading
Thu Sep 17, 2009 7:27pm EDT
By Karey Wutkowski
WASHINGTON (Reuters) - U.S. securities regulators proposed on Thursday a ban on flash
orders that stock exchanges send to a select group of traders, fractions of a second before
revealing them publicly.
The Securities and Exchange Commission is seeking to end the practice criticized for giving an
unfair advantage to some market participants who have lightning-fast computer trading software.
Nasdaq OMX's Nasdaq Stock Market and privately-held BATS Exchange recently canceled their
flash services that disclosed buy and sell orders to specific trading firms before sending them to
the wider market.
NYSE Euronext's New York Stock Exchange did not adopt the flashes under scrutiny but major
alternative venue Direct Edge still offers flashes.
The SEC will put its proposal out for public comment for 60 days, and will later schedule a
meeting to decide whether to adopt the proposal.
The agency said it will seek feedback on the cost and benefits of the proposed ban, and whether
the use of flash orders in options markets should be evaluated differently from those in equity
markets.
The agency also tightened rules on credit rating agencies by imposing more disclosure
requirements and encouraging unsolicited ratings. Those moves, and others proposed by the
SEC, took aim at an industry widely criticized as having fueled the financial crisis through over-
generous ratings assigned to toxic mortgage-backed securities.

2. BROADER REVIEW
The proposed ban on flash orders is part of a broader effort by the SEC to crack down on obscure
corners of the U.S. stock market.
SEC Chairman Mary Schapiro said the agency will keep reviewing trading practices that may
give an unfair advantage to some market players. "Other market practices may have similar
opaque features," she said.
Supporters of high-frequency trading practices such as flash trading say they add needed
liquidity to the markets, and allowed the markets to function smoothly during the financial crisis.
But critics, including some lawmakers, say the markets need to be better policed so all investors
are operating on an even playing field.
In July, Senator Charles Schumer, a New York Democrat, told the SEC to curb flash trading and
threatened the agency with legislation if it failed to do so.
Schumer said in a statement on Thursday that flash trading could seriously undermine fairness
and transparency in markets.
"This ban, as proposed, is pretty much water-tight and should not be weakened by the
commission as the rule-making process goes forward," he said.
Joe Mecane, NYSE Euronext's executive vice president of U.S. markets, has said flashes were "a
relatively small debate that evolved into a very large debate."
At most, flashes represented less than 3 percent of U.S. equity trading volume.
All five SEC commissioners voted to propose the flash trading ban, but some were cautious
about overreaching in reviewing other market practices.
Troy Paredes, a Republican commissioner, said investors ultimately benefit from regulatory
restraint. "Exchanges and other trading venues need flexibility to innovate new products,
services and trading opportunities," he said.
Democratic commissioner Elisse Walter also cautioned against too broad a crackdown and said
each trading practice should be examined separately and carefully.
"They have different potential benefits and different concerns," Walter said.
(Reporting by Karey Wutkowski; Editing by Tim Dobbyn)