WASHINGTON (Reuters) - U.S. securities regulators are launching a website to provide the public with extensive equity market data, a move that will help shed light on high-speed electronic trading and inform the heated debate over market structure reforms.
The Securities and Exchange Commission has been examining complaints for years that high-frequency trading puts ordinary investors at a disadvantage and should face new regulations or monitoring.
High-speed traders, however, argue that they provide crucial liquidity to the markets and are not disruptive.
Until just last year, the SEC did not have full access to real-time trading data to help it make rules.
The new website, which goes live next week, will give the public a limited view into this data that will allow a better discussion about potential reforms, the SEC says.
“We expect this new tool to transform the debate on market structure by focusing as never before on data, not anecdote,” SEC Chair Mary Jo White said during a Security Traders Association conference in Washington, D.C.
“With the click of a mouse, results will be available in clear, easy-to-read charts and graphs.”
White said during her confirmation hearing earlier this year that market structure matters and an examination of issues surrounding high-frequency trading would be one of her main priorities.
The SEC’s new market data website will give the public the ability to examine in detail the various quotes, cancellations and executed trades that flood the country’s 13 exchanges.
The site can be used to measure how quickly orders were filled or compare how often orders that entered the market were actually executed and how many were canceled.
Initially, the site is expected to be updated quarterly, although the SEC envisions more frequent updates in the future, an SEC spokesman said.
The data on the SEC’s website, while voluminous, represents just a snapshot of the billion records the SEC receives each day through its new system, known as Market Information Data Analytics, or MIDAS, which began operating fully in January.
MIDAS gives the SEC a real-time way to collect and analyze all of the quote and trading data from the public tapes for equities and options, and from the same proprietary data feeds that high-frequency traders use.
The MIDAS system itself was developed by Tradeworx, a high-frequency trading firm based in Red Bank, New Jersey.
The SEC for years has been under pressure to make equity market structure reforms, especially in the wake of the May 6, 2010, “flash crash” in which the Dow Jones Industrial Average plunged more than 700 points before rebounding.
Although regulators later determined that high-speed traders were not directly to blame for the event, it sparked a broader debate about their role in the markets and whether their practice of rapidly cancelling trades to test for market interest was adversely impacting ordinary investors.
Some experts have called for reforms such as charging firms for the high level of message traffic that they claimed was flooding the market and burdening the exchanges, an idea the SEC has yet to take up.
White said on Wednesday that data reviewed by the SEC show that high-speed traders are not cancelling trades for orders on corporate stocks as often as people suspected.
“Though we can clearly see that quotes are sometimes canceled within a millisecond or faster, the data show that the high-speed market is not dominated by such cancellations,” she said. “In fact, over a quarter of all exchange-based trades in corporate stocks are executed against orders that have rested for only half a second or less.”
On the sidelines of Wednesday’s event, White declined to say how the new data on trade cancellations could impact rule making.
“I think the key is we not get ahead of ourselves,” she said. “What we now have is the data and we want the feedback on the data.”
White also broadly outlined a few other issues she hopes the SEC will address.
She supports a pilot program to allow smaller companies to use wider “tick sizes,” or the minimum pricing increment that can be used to trade securities.
She also said the SEC needs to scrutinize whether the current regime of requiring for-profit exchange operators such as Nasdaq and NYSE Euronext to also police their own markets as self-regulatory organizations is truly working.
“This evaluation should include whether the current exchange regulatory structure continues to meet the needs of investors and public companies,” she said. “Does it provide sufficient flexibility for exchanges to implement transparent trading models that can effectively compete for investor orders?”
Reporting by Sarah N. Lynch; Editing by Karey Van Hall, Leslie Adler and Andre Grenon