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July 24, 2009 06:39 PM
Jimmy,
This practice simply must be stopped.
Best wishes from your pal,
Trader Dan
Sen. Schumer warns SEC on "flash" stock orders
By Jonathan Spicer
NEW YORK, July 24 (Reuters) - U.S. Senator Charles Schumer warned a top regulator on Friday that if she does not ban so-called "flashes" — orders that stock exchanges send to a select group of traders before revealing them to the wider market — he will introduce legislation that does.
In a letter dated Friday to Mary Schapiro, chairman of the U.S. Securities and Exchange Commission, Schumer said this type of order "seriously compromises the integrity of our markets and creates a two-tiered system where a privileged group of insiders receives preferential treatment.
"If allowed to continue, these practices will undermine the confidence of ordinary investors and drive them away from our capital markets," Schumer, a senior Democrat on the Senate Banking panel, said in the letter obtained by Reuters and verified by an aide.
"If the SEC fails to curb this practice, I plan to introduce legislation in the U.S. Senate to prohibit the use of flash orders," the letter said.
At issue are buy and sell orders that the Nasdaq Stock Market and BATS Exchange began "flashing" early last month to market members, including the big broker-dealers, before they are routed elsewhere to all participants.
The flashes — which last for fractions of a second, allowing computer programs to respond — are also available in some anonymous trading venues, known as "dark pools." Some describe them as exchange-run dark pools.
The new services at Nasdaq and BATS resemble one long offered by fast-growing trading venue Direct Edge, and amplified an ongoing debate over fair market access, prices, and the way orders circulate through the dozens of electronic trading venues in the United States.
Schapiro has not specifically mentioned flash orders publicly. But in a speech last month she raised concerns about the growth of dark pools, warning that the SEC may take action to protect market integrity and fair price discovery.
An SEC spokesman said he couldn’t confirm or comment on letters the market watchdog receives.
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