WASHINGTON The first responsibility of the U.S. Securities and Exchange Commission is to protect long-term investors if their interests conflict with short-term traders, the head of the SEC said in a letter revealed on Monday.
"I firmly agree that the commission's focus must be on the protection of long-term investors," SEC Chairman Mary Schapiro said in a Sept 10 letter to Senator Ted Kaufman, Democrat of Delaware.
Kaufman had asked the SEC to review what he called "questionable" developments in the structure of capital markets such as so-called dark pools, flashes, and co-location.
Schapiro said that vigorous competition among short-term traders can lead to important benefits for long-term investors but that if their interests conflicted, the SEC had a "clear responsibility" to uphold the interests of long-term investors.
The SEC has been examining market structure issues and is probing aspects of trading and transparency at "dark pools," where large block trades are done away from central exchanges.
It is also reviewing co-location, where firms rent space at exchanges like NYSE Euronext NYX.N in an attempt to shave valuable microsecond from trading times.
On Thursday, the SEC is expected to consider a proposal that would ban the use of flashes, or when exchanges flash buy and sell orders to member firms before revealing them publicly.
Schapiro said the SEC must keep a careful watch on the rapid advancements in trading technology to ensure that sophisticated traders are not favored and that federal rules keep pace with market developments.
(Reporting by Rachelle Younglai, editing by Leslie Gevirtz)