Committees, investigations, concerns... but no actions. The SEC's Mary White spoke about market micro-structure this morning but mereley asked a lot of questions - as opposed to answered any. Two things she did mention of note: increased transpraceny for dark pools and internalizers; and forcing more high-frequency traders (and prop shops) to register as broker-dealers (and thus come under closer regulatory scrutiny). However, by the time any of this becomes 'law', we suspect the lobbyists will have created loopholes the size of Draghi's ego for HFTs to walk through. As WSJ reports [11], the SEC's enforcement division is investigating whether some high-speed traders are using order types - commands exchanges provide that determine how traders' buy and sell orders will be handled - in ways that can give them an advantage over less-savvy investors. We apologize for not seeing this 'investigation' as a positive but we've been here before with every other regulator... vested interests remain strong.
As WSJ reports,
Securities and Exchange Commission Chairman Mary Jo White unveiled a sweeping set of initiatives Thursday to address mounting concerns about the impact of computer-driven trading on the stock market, including proposals that would extend oversight of high-frequency traders and dark pools.
The SEC Looks to Enhance Market Structure:
Finalize proposed Regulation SCI to put in place stricter requirements for the technology used by exchanges, alternative trading systems and others.
Develop a new rule for additional safeguards when liquidity is most vulnerable and the risk of price disruption caused by aggressive short-term trading strategies is highest.
Improve firms' management of the risks associated with the use of algorithms and the SEC's oversight of their use.
Examine whether the SEC's own rules, including elements of Regulation NMS, have contributed to excessive fragmentation across all types of trading venues.
Examine whether to further mitigate or eliminate potential sources of conflicts between brokers and customers.
Finalize terms for a pilot program to allow wider tick sizes for the stocks of smaller companies.
The proposed measures will help the market "operate openly, fairly and efficiently to benefit investors and promote capital formation," Ms. White said.
The new rules, if approved and implemented by the SEC, could force significant changes upon high-frequency traders, who now account for more than half of all stock-market volume, according to analysts.
Among the most significant proposals unveiled by Ms. White Thursday is a rule that would require high-frequency traders to register with regulators as broker dealers, pulling them further under regulatory scrutiny. High-frequency traders have largely avoided direct oversight since they are typically private outfits that trade on behalf of their owners.
Ms. White also directed SEC staff to develop a new anti-disruptive trading rule to prevent rapid-fire traders from engaging in short-term strategies that can aggravate market volatility.
The proposals will be developed by the SEC's staff in the coming months and will require a vote by the full commission, meaning it could be months—if not years—before they're fully implemented.
Many of the proposals are likely to trigger pushback from some high-speed firms and other market players. Defenders of high-speed trading say the firms help regular investors since the traders stand ready to buy and sell under most market conditions.
The ideas are good, but have been around forever - and we just don;t believe change will come any time soon. But there is this...
The SEC will also direct exchanges to conduct a comprehensive review of order types and to make rule changes to clarify how they interact, Ms. White said.
The SEC's enforcement division is investigating whether some high-speed traders are using order types—commands exchanges provide that determine how traders' buy and sell orders will be handled—in ways that can give them an advantage over less-savvy investors.
We just hope they employ independent consultants that are not HFT traders (or exchange employees) to do the analysis