High-Speed Traders Face New Requirements from SEC


"The SEC may give some high-frequency traders trading identification codes. . ."

The Securities and Exchange Commission may give some firms that engage in high-frequency stock trading identification codes to better track transactions accounting for more than 60 percent of U.S. volume.

SEC commissioners will vote April 14 on a proposal to require companies that exceed a volume threshold to report their executions to regulators, the agency said in a statement yesterday. Brokerages would have to maintain records on the orders, the SEC said.

The agency is evaluating whether strategies used at high- frequency trading firms and hedge funds are degrading the quality of markets by causing volatility or making it more difficult or expensive for investors to complete transactions. Any new rules could impose additional reporting requirements on large brokers, proprietary trading firms such as Getco LLC and RGM Advisors LLC, and hedge funds.

"We support well-regulated markets where regulators have the tools and information they need to effectively conduct surveillance and better understand market participants," said Richard Gorelick, chief executive officer of RGM Advisors, an Austin, Texas-based firm that trades multiple asset classes. Gorelick said he hopes the SEC's definition of large traders "will be broad enough to give regulators the insight they're looking for."

Brokers, Non-Brokers

New rules are likely to affect both brokers and non- brokers. The SEC hasn't said what the threshold would be under what it calls its large trader reporting authority. The agency gained this authority from the Market Reform Act of 1990, which Congress adopted after the stock market crash in October 1987.

Efforts to institute a reporting system for large firms were abandoned in favor of gaining easier access to transaction data from brokers' customers, including proprietary trading firms and hedge funds. The SEC uses what's called an Electronic Blue Sheet system to request the information it seeks on customers whose behavior it's investigating.

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