UPDATE 1-Sen. Schumer warns SEC on "flash" stock orders

NEW YORK/WASHINGTON, 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 aid.

"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."

At issue are buy and sell orders that the Nasdaq Stock Market and BATS Exchange began "flashing" early last month to market members before they are routed elsewhere to all participants.

Schapiro has not mentioned flash orders specifically. But in a speech last month she raised concerns about operators of anonymous trading venues, known as "dark pools," warning the SEC may take action to protect fair price discovery. (Reporting by Jonathan Spicer in New York, and Thomas Ferraro and John Poirier in Washington; editing by Andre Grenon)