(Adds Breakingviews link)
By Sarah N. Lynch, John McCrank and Herbert Lash
June 5 The top U.S. securities regulator said on
Thursday her agency is developing rules that target high-speed
traders, less transparent trading venues and order-routing
practices, to make equity markets more stable and fair for all
U.S. Securities and Exchange Commission Chair Mary Jo White
said she hoped to get some of the proposals before her fellow
commissioners in the "coming months."
There have been wide calls for market structure reforms
since the May 2010 "flash crash" in which the Dow Jones
industrial average plunged 700 points before a sharp rebound.
The rise of high-speed traders has also raised concerns,
with critics questioning if they have an unfair edge in the
market and if they skew pricing.
"The SEC should not roll back the technology clock or
prohibit algorithmic trading," White said during a speech in New
"But we are assessing the extent to which specific elements
of the computer-driven trading environment may be working
against investors rather than for them," she added.
The heads of the two major U.S. stock exchanges said they
were optimistic after hearing what White had to say about the
direction she is taking.
Traditional exchanges have been urging reforms to tackle the
increasingly opaque markets, as they have lost market share to
competitors such as dark pools and brokerage internalizers which
do not publicly display their quotes.
"It was clearly not a classical lunchtime speech. It was a
clear policy direction for the commission, probably for the next
three to five years," said Nasdaq OMX Chief Executive
Robert Greifeld, who was in the room as White delivered her
"I have less concerns now than I had before. Obviously the
commission has to work to deliver their case, but these were
words of action that she used."
White said she has numerous proposals in the works,
including an "anti-disruptive trading" rule to rein in
aggressive short-term trading by high-frequency traders during
vulnerable market conditions, and a plan to force more
proprietary trading shops to register with regulators and open
their books for inspection.
She also said her staff is working on measures to improve
how trading firms manage risks around their use of computer
Beyond high-speed trading, White also announced that the
staff is drafting other market structure reforms.
One such rule would require alternative trading venues such
as dark pools and firms that match customers' orders internally
to tell regulators and the public about how they operate.
Dark pools allow investors to execute trades anonymously and
only make trading data available afterwards.
Another proposal would seek to mitigate potential conflicts
of interest at brokerages by requiring more disclosure on how
they handle orders for large institutional investors.
Such a rule could level the playing field because brokers
are now required to disclose how their retail clients' orders
are handled, but they do not need to make the same disclosures
for institutional investors.
For a full run-down of White's proposals, please see the
To help craft the new rules, White said she is creating a
special new market structure advisory committee.
She also called on exchanges to adopt a rash of measures,
including a broad review of order types, and requiring exchanges
to add a "time stamp" on public consolidated trading data feeds
so users can see just how quickly they are getting the
Annette Nazareth, a former Democratic SEC commissioner who
is now a partner with the law firm Davis Polk & Wardwell LLP,
said White's speech was "significant."
"It should strengthen confidence that the SEC is well aware
of the issues and has a plan to address them," she said.
White's fellow SEC commissioners also said they welcomed her
plans and look forward to tackling the issues.
"The staff has discussed market structure issues for years.
It is good to hear that the Chair has directed them to take
action," said SEC Democratic Commissioner Luis Aguilar, who
added he hopes they will work with "deliberate haste" to get
Republican Commissioner Michael Piwowar said he welcomes a
"comprehensive market structure initiative," but noted "the
devil is still in the details."
"I look forward to engaging in a thoughtful dialogue," he
(Reporting by Sarah N. Lynch in Washington, D.C.; additional
reporting by John McCrank and Herbert Lash in New York; Editing
by Bill Trott and Susan Heavey)