U.S. securities regulators proposed requiring high-frequency traders to reveal their identities and disclose their trades -- the latest attempt to get a grip on the lightening-fast trades that are shaking up equity markets.
The Securities and Exchange Commission voted unanimously on Wednesday for a plan to tag high-frequency traders with ID numbers and give the SEC access to information on their trades.
This would allow regulators to analyze the fast traders' activities and judge whether their trades skew the markets, or disadvantage retail investors, as some critics have charged.
The SEC also voted in favor of a plan to shine more light on the options market, proposing to cap fees for investors who want to access the market's best price.
Both proposals are open for a 60-day comment period. The SEC must vote again to make the rules final.
The SEC is already examining whether additional rules are needed to curb fast traders, or firms that use sophisticated algorithms to buy and sell stock in a fraction of a second.
The rapid trading is estimated to account for some 60 percent of all U.S. equity trading. The proposed rules would apply to 400 of the largest traders operating in the U.S. equity markets. Traders would be tagged if they trade at least 2 million shares or $20 million during a day. They would also be tagged if they traded at least 20 million shares or $200 million during a month.
To better oversee the U.S. securities markets, the commission must be able to readily identify large traders operating in the ... markets, and obtain basic identifying information on each large trader, its accounts, and its affiliates, SEC Chairman Mary Schapiro told a commission meeting.
Having access to large traders' activities is one part of Schapiro's plan to improve market surveillance, which is currently shared by in-house teams at trading venues like the New York Stock Exchange and the broker-dealer watchdog, the Financial Industry Regulatory Authority.
OPTION FEE CAPS
The SEC also sought to make the pricing on options markets more transparent for investors. Currently there are eight U.S. options exchanges that charge investors different fees to access their markets.
The SEC proposed capping the fee at 30 cents per contract. The cap would only apply for an investor who wanted to access the market's best price.
Investors should have access to the best displayed quotes in the markets, SEC Commissioner Elisse Walter said.
At least three of the eight U.S. options exchanges currently charge fees of more than 30 cents per contract. They are Nasdaq OMX's
Andy Nybo, principal and head of derivatives at consultancy TABB Group, called the SEC's proposal a piecemeal approach where they're looking to adjust various parts without looking at the picture as a whole.
By targeting just one part of the market structure... they may perhaps miss the bigger picture of having a set of coherent rules for pricing, routing fees, and order types, Nybo said.
(Additional reporting by Doris Frankel in Chicago: editing by Lisa Von Ahn and Tim Dobbyn)