Breaking News: SEC Plans To Ban ‘Flash Trades’ That Give Advance Info To Certain Traders
SCHUMER ANNOUNCES THAT SEC PLANS TO BAN ‘FLASH TRADES’ THAT GIVE ADVANCE INFO TO CERTAIN TRADERS
In Personal Call With Schumer, SEC Chair Schapiro Pledges That A Ban On The Controversial Practice Is Imminent
Unfair Practice Gives Certain Traders Advance Knowledge of Buying and Selling Activity, Putting Retail and Institutional Investors At Unfair Disadvantage
Schumer, Having Urged SEC To Curtail Flash Orders In Letter Last Month, Praises Move
WASHINGTON, DC—U.S. Senator Charles E. Schumer (D-NY) announced Tuesday that the head of the Securities and Exchange Commission (SEC) has personally assured him that the agency plans to ban the practice of so-called “flash trading” that gives advance knowledge of stock orders to certain traders. SEC Chairman Mary Schapiro informed Schumer of the imminent ban—which she said would occur as part of a larger look at dark pools and high-frequency trading—in a personal phone call late Monday. The call came in response to a letter Schumer sent last month saying that the SEC should eliminate the practice or else he would offer legislation to do so.
In a statement Tuesday, Schumer praised the decision, adding that he believed the SEC would stay vigilant against future market innovations that might similarly harm transparency in the markets.
“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,” 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,” Schumer added. “There is a lot of mystery about what goes on in dark pools and in the realm of high-frequency trading generally. I am confident the SEC will be able to separate valid innovation from other practices that give certain traders an unfair advantage over others.”
Flash orders are a type of trade order used in high-frequency trading, a technique that has gained attention recently for contributing to the spike in trading volume and, according to critics, increased volatility on U.S. exchanges. According to one industry estimate, high frequency trading accounted for $21 billion in profits in 2008.
Flash orders allow sophisticated high-frequency traders to gain access to trading information before it is sent out widely to other traders. For a fee, the exchange will “flash” information about buy and sell orders for just a few fractions of a second before the information is made publicly available. These traders, using super-fast computers, can then act on that early information to trade ahead of the pending orders. The practice can influence the pricing of stocks, experts say.
Last week, two major exchanges that offer the service indicated they would go along with a potential ban. Both NASDAQ and the Kansas City-based BATS exchange publicly acknowledged that flash orders can pose an inherent threat to the integrity of the markets. Meanwhile, another provider known as DirectEdge has defended the technique as a necessary source of liquidity for exchanges.
(16 votes)
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on Tue, 08/04/2009 - 10:51
#23994
Ok, so what about dark pools? Thats the next 300lb gorilla to slay.
-Silence Dogood
on Tue, 08/04/2009 - 11:56
#24136
I'd like to see the same in Canada. Once upon a time the TSX used to publish the buyers/sellers of the most recent
ten block trades of any stocks. I miss those days...
on Tue, 08/04/2009 - 10:56
#24003
And if someone violates this ban they will be fined 0.00001% of revenues and not have to admit any fault.
But cynicism aside, big ups Mr. Durden on keeping this issue on the frontburner. Having a flashtrading ban is better than the practice being allowed.
on Tue, 08/04/2009 - 10:58
#24004
One small step for TD, one huge step towards efficient & free market!
on Tue, 08/04/2009 - 11:01
#24006
Is that why goldman dumped for a minute?
No seriously so are we going to see like 100 trades for the day if HFTP's get turned off cuz everyone with any sense has gotten out of the market...check that... ok, I'm getting out of the market now...
on Tue, 08/04/2009 - 11:00
#24009
TAKEDOWN!!!
on Tue, 08/04/2009 - 11:00
#24010
TD, great stuff... well done :)
on Tue, 08/04/2009 - 11:02
#24012
I'll be stoked WHEN it happens....
on Tue, 08/04/2009 - 11:02
#24013
One for Zero Hedge.
I think Wall Street loves Zero Hedge as much as they loved Spitzer
on Tue, 08/04/2009 - 11:04
#24018
This could by why Timmy had meltdown the other day - his buddies at GS aren't going to be able to rape and pillage any more.
on Tue, 08/04/2009 - 11:20
#24057
Pika!!!!! nice to see you here!!!
on Tue, 08/04/2009 - 13:03
#24306
Where's Black Swan?
on Tue, 08/04/2009 - 11:04
#24021
I suspect a lot more of Wall Street loves ZH than you could possibly imagine
on Tue, 08/04/2009 - 11:05
#24022
Interesting that GS is unch. on this......
on Tue, 08/04/2009 - 11:05
#24024
Congratulations TD (and crew) if this is actually put in place. Well, grats either way just getting it to this point.
Look out Fed.
on Tue, 08/04/2009 - 11:05
#24025
GS is going to have its wings clipped at long last!
on Tue, 08/04/2009 - 11:05
#24027
Congrats, TD!
Wow, Chuck S. is doing the right thing; thanks.
Barnie F., time for you to step up to the plate for hoi polloi.
on Tue, 08/04/2009 - 11:06
#24028
If flash trades are banned and orders are required to be held open for one second or more, then how will this affect the ability of the FED to manipulate the stock market? This kind of transparency can't be helpful to them. What are their options to get past this?
on Tue, 08/04/2009 - 11:10
#24041
How does the Fed use Flash Trading to increase stock prices? Why would it need flash orders? Thanks.
on Tue, 08/04/2009 - 11:22
#24061
The Fed is only (indirectly) supplying the underlying capital. It's the Fed's agents, i.e. Goldman, that are actively using Flash Trading and other dubious platforms to pull off the rest of it.
on Tue, 08/04/2009 - 11:55
#24135
The fed is supposed to be pumping the stock market by using Fed Res Bnk - NY to conduct open market operations. I assume that GS is one of the recipients and is using the money to perform the pump. HFT fake orders are the mechanism. Flash orders just help the process along.
on Tue, 08/04/2009 - 11:57
#24139
Why does part of me think that it must not be that much of a threat if they're actually going through with this ban?
on Tue, 08/04/2009 - 11:06
#24030
Goldmans release to clients shows that they get all information early, and often.When can we the people get an assurance that there is a fair market for ALL ?
on Tue, 08/04/2009 - 11:10
#24038
good catch. strange coincidence.
on Tue, 08/04/2009 - 11:09
#24035
First, we should all thank Zero Hedge for bringing this to light and keeping attention on it.
Second, we should be very worried, of course, and all of us already were, that our regulators didn't do this. After all, that's what we pay them for.
Because here's the problem: they'll change the name of "Flash Trading" and MAYBE one or two little technical details, and just start doing it again. The malefactors do not have sufficient fear. They'll cheat the market, get slapped on the wrist, and do it again. Largely, because in the fascism into which we have descended, the government needs the big organizations and will allow them to cheat the market on their own behalf if they cheat the market a little on the government's behalf AND pretend that the system works.
It doesn't. The regulators as individuals all aspire to work for the organizations they oversee, and as regulatory bodies have more interest in perpetrating the scams symbiotically than in stopping them. Eventually, we'll run out of Senators who care, or the ones who do will run out of time to follow up on this stuff, or whatever. And the little bugs will all flit to under the next rotten log.
on Tue, 08/04/2009 - 12:15
#24184
No doubt they'll look for the next rotten log or, better yet, build it.
That's the nature of Big Money sociopathy hiding behind claims of "free market capitalism" that play so well to the influential affluent crowd and their sycophants (both the cynically indifferent and the simply ignorant factions.)
But that's the game. It's what sociopaths do. What counts is that we continue to pursue them and this is a good sign.
CONGRATS, ZH!!!!
Next comes the FED.
on Tue, 08/04/2009 - 11:16
#24049
Congratulations TD. As far as I'm concerned, about 99.9% of the credit goes to Zero Hedge. You should be proud of this accomplishment. Please reward yourself with a couple of hours of sleep and rest....!
on Tue, 08/04/2009 - 11:24
#24070
Agreed. You're an American Hero, and a damn machine. Take a well deserved rest this weekend, brother.
Next up, tackle the damn commodities exemption granted to GS
on Tue, 08/04/2009 - 11:17
#24050
Tyler
You are a true patriot. They should give you a damn medal or something.
on Tue, 08/04/2009 - 11:17
#24051
Props to Schumer. Finally a politician with some balls.
on Tue, 08/04/2009 - 11:19
#24055
Nice work Zero Hedge. Next up, how will they be able to enforce this or just not change things to delay orders, in effect creating the same game.
I mean we are talking about sophisticated software code that is able to do this, again, how will this be stopped and enforced?
on Tue, 08/04/2009 - 11:22
#24060
Tyler, you know this is all you, right? In 6 short months you've managed to change public policy in the United States. If you have paypal, I'd be happy to buy you a case of beer. American beer.
on Tue, 08/04/2009 - 11:23
#24063
A freaking men to that!
on Tue, 08/04/2009 - 12:27
#24215
I'd recommend Mad Hatter Ale. It sounds crazy, but it delivers the goods . . . kinda like "Tyler Durden."
on Tue, 08/04/2009 - 13:04
#24307
Ahh, that's givin me an idea for a new homebrew.
on Tue, 08/04/2009 - 13:35
#24361
Just wanted to advise you that Mad Hatter is actually on the market (and it is exquisite.)
I'd suggest a co-venture with TD licensing the ZH brand to existing local micro-breweries . . .
on Tue, 08/04/2009 - 13:36
#24363
<duplicate>
on Tue, 08/04/2009 - 11:24
#24067
I wonder if the boys from CNBC will give any credit to Zero Intelligence?
on Tue, 08/04/2009 - 11:32
#24091
Yeah, they'll send out a head-hunting party!
on Tue, 08/04/2009 - 11:25
#24071
Zero Hedge = Free Market Ninjas
on Tue, 08/04/2009 - 11:26
#24073
There must be another scam in the works.
on Tue, 08/04/2009 - 11:26
#24074
Very nicely done !
On the other hand it seems like Goldman is hurrying to settle with the russian guy.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aGoGWhxi5QEE
on Tue, 08/04/2009 - 11:27
#24079
The SEC also banned naked short selling...
on Tue, 08/04/2009 - 11:28
#24081
one small victory for Zero Hedge, and one giant FUCK YOU to Goldman Sachs and all the other leeches ...
on Tue, 08/04/2009 - 11:29
#24083
It's really sad that someone had to light a fire under Mary Shapiro's ass to get this things moving.
It's equally conforting that Zero Hedge (and agents) are keeping these other issues on the front burner so that reps like Chuck Schumer can keep the fire burning at the SEC.
Between this news and the FDIC's notice for the banks to writedown bad assets, this couldn't have been a good week for Turbo Timmy and Larry the Lounge Lizard.
on Tue, 08/04/2009 - 11:29
#24084
this should be followed by a class action law suit.
on Tue, 08/04/2009 - 13:07
#24311
Ding Ding Ding!
on Tue, 08/04/2009 - 11:30
#24089
"(SEC) has personally assured him that the agency plans to ban" "in a personal phone call".
this means that nothing will happen.
on Tue, 08/04/2009 - 11:33
#24093
Too early to celebrate, this is not even the tip of iceberg.
The false sense of satisfaction and victory will lead you to the same path of misery. Remember, flash orders are still routing in the optic veins at this momnet and nothing is being achieved yet. A new product with little tweaks will soon emerge, potentially more dangerous than flash orders.
We need a run on one or two major banks to show them that either behave or get beheaded. Lets start with the stronger banks and it will be house of cards from there on...
on Tue, 08/04/2009 - 11:40
#24113
We will gladly scrutinize any "emerging" products.
on Tue, 08/04/2009 - 11:33
#24096
Everyone realizes that as good as this victory is, that this just means that GS and others are now already short the market having finished passing off the long positions to the retail bag holders. After today or tommorrow's blow off top, look for the bans to take effect and a sharp decline.
on Tue, 08/04/2009 - 12:09
#24170
Yep. GS **is** the government.
on Tue, 08/04/2009 - 14:27
#24200
It certainly changes the odds on that proposition, doesn't it.
Speaking of potential bans, anybody know how inverse ETF's are faring?
on Tue, 08/04/2009 - 11:35
#24100
Nice fucking job, Tyler and crew! All of you kick ass!
Thank you!
on Tue, 08/04/2009 - 11:36
#24104
Starting to think TD is Spitzer.
on Tue, 08/04/2009 - 12:23
#24209
Thank God he now has Marla on his ass and no free time on his hands!
on Tue, 08/04/2009 - 12:31
#24223
I'm a fan of Spitzer in many but not all regards and applaud Eliot's efforts to come back out in the public. Eliot simply does not have the diverse financial knowledge exhibited by TD, it's just that simple. I would LOVE for Eliot and TD to make contact and have a chat. Eliot, please contact TD at tips @zerohedge dot com and take him for a jog in the park
on Tue, 08/04/2009 - 12:33
#24227
no way. TD is not client number 9.....
on Tue, 08/04/2009 - 11:36
#24105
Congrats TD. This wasn't even on the radar a while back. How long til Gasparino claims he broke the story over dinner at Campanogla
on Tue, 08/04/2009 - 11:38
#24108
Seems to be a false alarm, Shapiro is moonwalking. Shapiro: “We are looking at the inequities caused by flash trading”
Translation: “ we will find something innocuous to sight, after the Fed/Goldman led run up is completed and UHC is approved.”
on Tue, 08/04/2009 - 12:33
#24225
mary schapiro will be making a big mistake phucking with Schumer....like him or not, he is near the top of the food chain.
on Tue, 08/04/2009 - 11:38
#24109
Nice job on ignoring the FACT that Flash orders result in price improvement and reduced execution costs for RETAIL orders, and focusing on the POSSIBILITY of a couple hundred share order being front run. I'm glad Flash orders will be removed so you can see that it won't materially change anything as they represent only 4% of market volume. I do agree that anything that offers a possibility for frontrunning should be outlawed, but you're really kidding yourselves to think that frontrunning small orders is in any way beneficial. Not to mention that these order types are OPTIONAL, for people who want to benefit from someone else having a "first look" at them. Otherwise, you don't use them.
on Tue, 08/04/2009 - 11:44
#24120
LL Cool J.
Mama Said Knock You Out
http://www.youtube.com/watch?v=-7l250E5uM4
on Tue, 08/04/2009 - 11:45
#24124
Congrats. I'd offer to buy you a beer, but you're Meatpacking and I'm more "Subway Inn."
Nice job.
on Tue, 08/04/2009 - 12:02
#24151
Next target...The Federal Reserve
on Tue, 08/04/2009 - 12:56
#24173
Great job TD. WSJ now too, posted 12:56 P.M. ET:
"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."
Thanks also to the SEC. More than odd that all SEC-er's mentioned (from Schumer's initial letter on) are women, no? Mc-Schwing indeed. You go girls! And thanks for Next Big Thing you're working on too:
http://blog.fi360.com/fi360_blog/2009/07/the-committee-for-the-fiduciary...
on Tue, 08/04/2009 - 12:11
#24179
Another way of saying bet with money you have and less bullshit trades " Free Riding " Momentum when your broke and executing the sell or buy to cover at a profit when you didn't have enough money to cover it in the first place.
on Tue, 08/04/2009 - 12:58
#24299
This is good to hear. By the way, what is the original source of the posted article?
on Tue, 08/04/2009 - 13:18
#24334
So, you're either too A) stupid or B) lazy to try out this new thing called 'The Google?'
It actually lets you find certain words on the whole big internets. You should look into it.
It even found the answer to your word problem in about .02 seconds. It's amazing!
on Tue, 08/04/2009 - 13:01
#24303
These means that now reality can set in and the market can reflect the state of fundamentals and the economy i.e. go down. GS is off the hook if there are no flash orders to blame the downside on.
on Tue, 08/04/2009 - 13:32
#24353
Excellent job ZH for keeping up the pressure on the fraud that is Wall Street. Your website provides an excellent informative resource as to the details of these practices. Nothing on the web provides this information and if not for ZH we couldn't apply the pressure for change.
Kudos to you all for bringing integrity back into the marketplace.
on Tue, 08/04/2009 - 13:33
#24355
He is dead now, because of us, alright? You understand that?
I understand. In death, a [front-runner] has a name. His name is Robert Paulson.
His name is Robert Paulson.
on Tue, 08/04/2009 - 13:34
#24359
forgot to add. Thanks Mr. Darden, I guess zero intelligence trumped negative intelligence this time.
Keep up the good work and I'll keep reading.
on Tue, 08/04/2009 - 14:04
#24425
One more for the bloggers with zero intelligence. Hooray!
on Tue, 08/04/2009 - 14:04
#24428
Any word on GS getting a pass on this one too?
on Tue, 08/04/2009 - 14:24
#24496
Well done Tyler!
You are starting a revolution.
on Tue, 08/04/2009 - 14:31
#24516
Not only are you driving policy you have smoked out that bitch Mary Shapiro. What an equivocating liar she is !!!
Anyway congrats. This should be the hottest site out there.
xoxo
Bonddude
on Tue, 08/04/2009 - 15:03
#24596
Out-fracking standing!
Don't worry-Chuck is a pitbull and obviously has had a good tutorial from Tyler and Marla about this crap from Goldman.
LOOK FOR GS and Fed to crash the market one day(like last fall) and hold the markets hostage
on Tue, 08/04/2009 - 18:55
#25013
Good Job Done !!
on Tue, 08/04/2009 - 20:17
#25124
Hate to rain on the parade, but didn't Matt Taibbi write in 'The Great Takeover' about the EU threatening tough regulation:
'The situation worsened in 2004, in an extraordinary move toward deregulation that never even got to a vote. At the time, the European Union was threatening to more strictly regulate the foreign operations of America's big investment banks if the U.S. didn't strengthen its own oversight. So the top five investment banks got together on April 28th of that year and — with the helpful assistance of then-Goldman Sachs chief and future Treasury Secretary Hank Paulson — made a pitch to George Bush's SEC chief at the time, William Donaldson, himself a former investment banker. The banks generously volunteered to submit to new rules restricting them from engaging in excessively risky activity. In exchange, they asked to be released from any lending restrictions. The discussion about the new rules lasted just 55 minutes, and there was not a single representative of a major media outlet there to record the fateful decision.
Donaldson OK'd the proposal, and the new rules were enough to get the EU to drop its threat to regulate the five firms. The only catch was, neither Donaldson nor his successor, Christopher Cox, actually did any regulating of the banks. They named a commission of seven people to oversee the five companies, whose combined assets came to total more than $4 trillion. But in the last year and a half of Cox's tenure, the group had no director and did not complete a single inspection. Great deal for the banks, which originally complained about being regulated by both Europe and the SEC, and ended up being regulated by no one.'
I hope this isn't just a pill to calm the masses.
Be vigilant and don't trust the SEC or the government.