Sept. 17 (Bloomberg) -- The U.S. Securities and Exchange Commission proposed banning flash orders after lawmakers said the practice may give hedge funds an advantage over other investors.
SEC commissioners unanimously voted today Ao seek public comment on a rule barring exchanges and trading platforms from giving clients access to information about stock orders a fraction of a second before the market.
“Investors that have access only to information displayed as public quotes may be harmed if market participants are able to flash orders and avoid the need to make the orders publicly available,” Chairman Mary Schapiro said.
Democratic Senators Charles Schumer and Ted Kaufman urged the commission to halt the practice, arguing frequent traders use technology to profit from access to information not available to retail investors. Direct Edge Holdings LLC has relied on flash orders to take market share from NYSE Euronext.
Nasdaq OMX Group Inc. and Bats Global Markets voluntarily dropped flash orders last month after the practice drew scrutiny from Congress and the SEC.
The SEC’s proposed ban requires a second vote at a later public meeting to become binding.
And here is Senator Kaufman's statement on the Flash Ban issued earlier:
“I commend the SEC for its proposal to ban flash orders. Let’s not forget, however, that this occurred only after public exposure of the SEC’s previous okay of flash orders. Flash orders may be a symptom of a much larger problem. Now the SEC must examine the rest of the iceberg. I’m pleased that the SEC has begun a comprehensive review of market structure issues, and I look forward to that process.
“The credibility of the U.S. financial markets is essential. For investors to have confidence, the SEC must ensure that high frequency trading, dark pools, potential conflicts of interest and other market structure issues are not undermining the interests of long-term investors.”