NEW YORK Nov 19 A former Fidelity Investments
vice president who ran the firm's Nasdaq trading department has
called for the U.S. Securities and Exchange Commission to roll
back one of its rules on stock trading.
In a paper, Leslie Seff, who ran trading departments that
provided liquidity for specific stocks, said the current market
structure impeded initial public offerings and relied too
heavily on high-frequency trading.
Seff called for the SEC to repeal part of a 2007 package of
rules called Reg NMS that requires dealers to meet every order
for a stock at a given price anywhere in the marketplace, even
if the price is just a tiny fraction higher than a large order
waiting to be filled.
This change would eliminate some high-frequency trading
firms' practice of using powerful computers to react in
split-seconds to other market activity, such as a block order by
a pension or investment management fund, and take advantage of
tiny price differences.
"The equity markets are being kept alive by an unhealthy
addiction," Seff wrote in the paper circulated by consulting
firm Matthew B. Management, of which he is president. "Nasdaq
and the New York Stock Exchange are being supported by the
activity of the high frequency trader."
In its January 2010 concept release on market structure, the
SEC examined the possibility of making a change similar to the
one Seff advocates. Rather than a repeal the earlier rule, the
concept release contained a proposal for a new "trade-at" rule
that would require dealers to fill an order on a specific
trading platform instead of searching for the best price in the
The number of IPOs has fallen over the past decade.
According to Grant Thornton, there were an average of 530 new
issues a year between 1991 and 2000, but since 2001, that has
dropped to 126.
Volume in the stock market is also hovering near lows
reached during the 2008 financial crisis, despite a rally in
share prices that has brought the major indexes back toward
Seff called for other changes to the marketplace as well. He
argued for a new requirement that would widen spreads between
bids and offers for recently issued stocks and forthcoming IPOs.
If these mandated spreads worked, they could be extended to all
These spreads would attract more traditional stock dealers
into the market, reducing reliance on high-frequency trading for
liquidity in certain stocks and possibly preventing a repeat of
the May 6, 2010, "flash crash," in which the Dow Jones
industrial average plunged 700 points in a matter of