SEC To Force Market Making Band Around NBBO, Eliminate Stub Quotes As Flawed Response To Flash Crash
In another indication of just how conflicted, confused and reactive the SEC is, Reuters reports that instead of focusing on such market destabilizing events as bid/offer cancellation and churning, Reg NMS loopholes, flash trading (yes, it is still legal, and Direct Edge is still making millions allowing those who desire and pay, to see anyone's orders ahead of time), and sub pennying, the SEC instead will focus on the completely irrelevant, and bracket market makers to submit quotes to within 10% of prevailing prices, as well as eliminating stub quotes, which in essence removes liquidity. Of course, the thought of actually removing the conditions in which stub quotes would be activated (instead of cancelling a $0.01 bid getting hit in Accenture), have never occurred to the SEC. After all, half its workforce is actively seeking employment at various HFT outfits, such as Getco, and if Mary Schapiro's worthless organization were to actually do something that may impair her employees from getting well-paying jobs from those whose interests it truly serves, it might potentially force the SEC "enforcers", "regulators" and generally, clowns, to find honest jobs, suited to their skill level, such as digging trenches, unplugging sewers, explaining how the market surges in weeks seeing unprecedented fund outflows, being brain donor recipients, and broadly volunteering for Phase III drug trials focusing on the treatment of galactic stupidity.
Aiming to avoid a repeat of the stock market's "flash crash" on May 6, the U.S. Securities and Exchange Commission and big exchanges are eyeing minimum obligations for market-making firms that would force them to submit quotes that are less than 10 percent away from a stock's current price, three sources said.
One of the sources said a rule proposal could come within weeks. Another source said the SEC was trying to firm up the market-making rules before it must start crafting dozens of new rules prescribed by financial reform legislation.
Market makers typically use their own capital to take both sides of the market, essentially buying and selling without taking long-term bets so that investors can easily trade. The disappearance of useful liquidity is seen as a cause of the May 6 crash.
The crash also brought calls for a crackdown on stub quotes, which are standing orders well off the current price of a stock. Many stubs placed by market makers and others were executed May 6, for as little as a penny.