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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
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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."

Securities and Exchange Commission Chair Mary Schapiro arrives on Capitol Hill in Washington to testify before the Senate Banking Committee earlier this year.
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)
A trader works in front of screens in a financial office in Paris.
A trader works in front of screens in a financial office in Paris.   (AP Photo/Remy de la Mauviniere)
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COMMENTS
Showing 2 of 2 comments
Thinker
Sep 17, 2009 9:19 PM CDT
Exactly. My Bf's boss explained it this way: "There's nothing wrong with having a super fast computer, and that'll still be kosher. Flash orders are seldom well explained. The idea was that if I paid the exchange a bunch of money, the exchange would give me a first look at all incoming orders before putting them on the open market, giving me time front run them. This practice was legalized criminal behavior. They stole from the customers."
odowd80
Sep 17, 2009 8:50 PM CDT
This practice is total bullshit and I'd be glad to see it banned. Using supercomputers to game the system does not contribute positively to anyone except the cheater. It goes against the very principles of investing.

 
stock market • SEC • stock exchange • SEC commissioners • investor • Mary Schapiro • high-frequency trading

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