Regulators propose ban on flash trading

Nasdaq OMX8217;s Nasdaq Stock Market and privately-held BATS Exchange recently canceled their flash services that disclosed buy and sell orders to specific trading firms before sending them to the wider market.

NYSE Euronext8217;s New York Stock Exchange did not adopt the flashes under scrutiny but major alternative venue Direct Edge still offers flashes.

The SEC will put its proposal out for public comment for 60 days,and will later schedule a meeting to decide whether to adopt the proposal.

The agency said it will seek feedback on the cost and benefits of the proposed ban,and whether the use of flash orders in options markets should be evaluated differently from those in equity markets.

The agency also tightened rules on credit rating agencies by imposing more disclosure requirements and encouraging unsolicited ratings. Those moves,and others proposed by the SEC,took aim at an industry widely criticized as having fueled the financial crisis through over-generous ratings assigned to toxic mortgage-backed securities.

BROADER REVIEW

The proposed ban on flash orders is part of a broader effort by the SEC to crack down on obscure corners of the US stock market.

SEC Chairman Mary Schapiro said the agency will keep reviewing trading practices that may give an unfair advantage to some market players. 8220;Other market practices may have similar opaque features,8221; she said.

Supporters of high-frequency trading practices such as flash trading say they add needed liquidity to the markets,and allowed the markets to function smoothly during the financial crisis.

But critics,including some lawmakers,say the markets need to be better policed so all investors are operating on an even playing field.

In July,Senator Charles Schumer,a New York Democrat,told the SEC to curb flash trading and threatened the agency with legislation if it failed to do so.

Schumer said in a statement on Thursday that flash trading could seriously undermine fairness and transparency in markets.