Breaking News: SEC Plans To Ban ‘Flash Trades’ That Give Advance Info To Certain Traders

Tyler Durden's picture


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.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
silencedogood's picture

Ok, so what about dark pools? Thats the next 300lb gorilla to slay.

-Silence Dogood

Anonymous's picture

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...

Steak's picture

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. 

Comrade de Chaos's picture

One small step for TD, one huge step towards efficient & free market!

 

D.O.D.'s picture

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...

Anonymous's picture

TAKEDOWN!!!

Anonymous's picture

TD, great stuff... well done :)

Anonymous's picture

I'll be stoked WHEN it happens....

Anonymous's picture

One for Zero Hedge.

I think Wall Street loves Zero Hedge as much as they loved Spitzer

Pika-Steph's picture

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.

curbyourrisk's picture

Pika!!!!!  nice to see you here!!!

Anonymous's picture

I suspect a lot more of Wall Street loves ZH than you could possibly imagine

Bruce Krasting's picture

Interesting that GS is unch. on this......

Gilgamesh's picture

Congratulations TD (and crew) if this is actually put in place.  Well, grats either way just getting it to this point.

 

Look out Fed.

Anonymous's picture

GS is going to have its wings clipped at long last!

jg's picture

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.

Anonymous's picture

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?

erich's picture

How does the Fed use Flash Trading to increase stock prices?  Why would it need flash orders?  Thanks.

Assetman's picture

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.

Anonymous's picture

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.

Anonymous's picture

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?

Anonymous's picture

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 ?

Anonymous's picture

good catch. strange coincidence.

Anonymous's picture

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.

Bob's picture

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. 

deadhead's picture

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....!

Veteran's picture

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

Anonymous's picture

Tyler

You are a true patriot. They should give you a damn medal or something.

Anonymous's picture

Props to Schumer. Finally a politician with some balls.

Gabriel Gray's picture

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?

svendthrift's picture

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.

 

Anonymous's picture

A freaking men to that!

Bob's picture

I'd recommend Mad Hatter Ale.  It sounds crazy, but it delivers the goods . . . kinda like "Tyler Durden." 

Gabriel Gray's picture

Ahh, that's givin me an idea for a new homebrew.

Bob's picture

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 . . .  

 

Anonymous's picture

I wonder if the boys from CNBC will give any credit to Zero Intelligence?

Anonymous's picture

Yeah, they'll send out a head-hunting party!

Anonymous's picture

Zero Hedge = Free Market Ninjas

buzzsaw99's picture

There must be another scam in the works.

Eduardo's picture

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

 

 

 

Silver Bullet's picture

The SEC also banned naked short selling...

Cheeky Bastard's picture

one small victory for Zero Hedge, and one giant FUCK YOU to Goldman Sachs and all the other leeches ...

Assetman's picture

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.

 

Dr Hackenbush's picture

this should be followed by a class action law suit. 

Anonymous's picture

"(SEC) has personally assured him that the agency plans to ban" "in a personal phone call".

this means that nothing will happen.

Anonymous's picture

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...

Tyler Durden's picture

We will gladly scrutinize any "emerging" products.