Following previously announced Securities and Exchange Commission (SEC) investigations into the “market integrity and structure issues” surrounding high frequency trading, SEC chair Mary Jo White has now revealed recommendations for updating the stock market’s rules for a quick-moving new millennium.
Speaking to the Sandler O’Neill & Partners, L.P. Global Exchange and Brokerage Conference on June 5, White revealed her proposals to better regulate the stock market. The proposed regulations include changes on high-frequency trades, exchanges, private trading venues and brokerage firms.
“Through this initiative and others, we have taken important steps to further strengthen the investing environment,” White said. “And today, as we move forward in the next phase of our efforts to enhance our market structure, I am recommending additional measures to further promote market stability and fairness, enhance market transparency and disclosures, and build more effective markets for smaller companies.”
Responding to critics of the SEC’s response to current trends in electronic trading, most notably Michael Lewis’s book “Flash Boys,” White said that electronic trading had brought benefits to the market, including lower trading costs. However, she also criticized high-frequency traders looking to take advantage of the system, saying that the current system was not designed for those types of trades. In her speech, White said she was focused on changing the system to eliminate “aggressive, destabilizing trading strategies in vulnerable market conditions.”
“Many market structure rules and industry practices were developed with manual markets in mind,” White said. “They cannot be expected to optimally address all of today’s market practices.”
In addition, White’s proposal looks to increase transparency within trading. In particular, she noted “dark trading venues,” which White says handle 35 percent of all trading volume today. “Transparency has long been a hallmark of the U.S. securities markets, and I am concerned by the lack of it in these dark venues,” White said. “Transparency is one of the primary tools used by investors to protect their own interests, yet investors know very little about many trading venues that handle their orders.”
None of White’s rules are set in stone, but she expects the proposals “to be considered by the Commission in the coming months.” No matter what, it seems that regulating high-frequency trading is a top priority on White’s to-do list, and in-house counsel should expect more regulations in this area moving forward.
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