SEC Moves to Ban Lightning-Fast Trading

Flash orders let big investors buy and sell in milliseconds, harming slower traders
By Jason Farago,  Newser Staff
Posted Sep 18, 2009 5:16 AM CDT
Securities and Exchange Commission Chair Mary Schapiro arrives on Capitol Hill in Washington to testify before the Senate Banking Committee earlier this year.   (AP Photo/Susan Walsh)
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(Newser) – The SEC is seeking a ban on the financial technique known as flash orders, a controversial method in which powerful computers survey other investors' trades and adjust strategies within milliseconds to turn a profit. SEC head Mary Schapiro said that flash orders "may create a two-tiered market" since only those with access to the best technology can take advantage of the system, placing millions of orders in a second and outfoxing slower-moving investors.

The market regulator announced the proposed ban alongside new rules for credit rating agencies, signaling a tougher post-Madoff stance from the commission. Outlawing flash orders drew praise on both Capitol Hill and Wall Street. "High frequency trading has made the markets more efficient," one investor said, but when it comes to flash orders, they tend to "benefit everyone except the customer."