Financial Regulatory Forum

SEC faces challenges before fast-trading reforms can go on the books

By Emmanuel Olaoye, Compliance Complete

The Securities and Exchange Commission has rolled out its intentions to regulate high-frequency trading, making stricter regulation in some form a strong possibility, but the agency faces more work and some challenging obstacles before it can put new rules in the books.

SEC Chair Mary Jo White in a speech last week outlined her goals for regulating high-frequency trading (HFT), at a time when political interest over the fairness and risks of the practice has surged in the wake of a best-selling book by financial writer Michael Lewis.

White‘s intentions for regulating high-frequency trading, which has taken a dominant role in U.S. equity markets, include registration requirements for proprietary fast-traders. Under such rules, firms registering as broker dealers would have to meet net capital requirements and establish adequate risk management controls.

The agency is also working on a rule to restrict disruptive trading rule. The rule would apply to proprietary traders in “short time periods when liquidity is most vulnerable and the risk of price disruption caused by aggressive short-term trading strategies is highest.”

The initiatives sound good on the surface but the SEC needs to work out the details, said Bernard Donefer, a professor of information systems in financial markets at Baruch College in New York. This includes learning more about the trading strategies of HFT firms before forcing them to register.

ANALYSIS-Regulation may dim growth of ‘dark pools’ in Asia

By Kevin Lim and Adrian Bathgate

SINGAPORE/WELLINGTON, Aug 17 (Reuters) – “Dark pools” and other alternative trading systems are not as big a threat to Asia’s bourses as they are for their western counterparts, given regulators’ reluctance to grant them a free reign and due to structural differences in markets.

Dark pools, so named because they represent large pools of “buy” and “sell” orders not visible to regular investors, operate relatively freely and match billions of dollars in stock transactions each day in the west.


FACTBOX – How does the EU plan to shake up financial services?

BRUSSELS, April 7 (Reuters) – The European Union (EU) is embarking on an overhaul of financial services that politicians hope will send bankers back to their roots of no-frills lending to households and business.

Michel Barnier is the EU commissioner in charge of the shake up on regulations ranging from curbs on banker pay to a clampdown on speculators betting on government debt.

Here is a guide to the overhaul:

* One of Barnier’s priorities is writing a rule book for trading derivatives, a financial instrument whose value is linked to an asset such as a government bond or currency.

ANALYSIS-US ‘dark pools’ marketplace may face pruning

   By Jonathan Spicer
   NEW YORK, Feb 24 (Reuters) – The surprising growth of U.S. stock trading venues is set for a pruning as regulators prepare to tighten controls on so-called dark pools and as brokers, still pinching pennies, look to narrow where they send orders. (more…)

LSE to join banks to operate Turquoise platform

LONDON, Feb 1 (Reuters) – The London Stock Exchange will join forces with banks to operate alternative trading venue Turquoise, the exchange’s chief executive said on Monday.

“The London Stock Exchange will be shortly launching an initiative, a cooperative partnership between wholesale market participants and the exchange under the name of Turquoise,” LSE Chief Executive Xavier Rolet said.

It will handle both “lit” order book and “dark” or anonymous trading within the same regulated venue, Rolet said.

EU executive to target derivatives speculation

(Adds more detail on derivatives legislation)

BRUSSELS, Jan 13 (Reuters) – Speculation in commodity derivatives has been “scandalous” and needs to be regulated carefully, the European Union’s nominee for chief financial watchdog said on Wednesday.

“Why do we have this speculation we have had over the last two to three years in raw materials,” Michel Barnier, EU internal market commissioner-designate, said.

“I am talking about speculation which to me is scandalous on agricultural raw materials … We have to do something about that,” Barnier told a confirmation hearing in the European Parliament.

US SEC sets market review, high-frequency probe

By Rachelle Younglai and Jonathan Spicer

WASHINGTON/NEW YORK, Jan 13 (Reuters) – U.S. securities regulators took their first stab at deciding whether rules are needed to curb high-frequency traders, whose lightning-fast computer programs now dominate equities markets.

In a move that could overhaul how markets function, the Securities and Exchange Commission voted on Wednesday to seek public comment on the rapid trades, the anonymous trading venues known as dark pools, and other market developments that have blossomed over the last decade.

The SEC will publish a so-called concept release asking whether the current structure of markets is fair to investors and whether they have the tools to protect their interests.

ANALYSIS-Inefficient systems keep European brokers behind the price curve

By Jane Baird

LONDON, Dec 18 (Reuters) – Europe’s fragmenting stock markets could cost investors profits unless brokers smarten up systems that currently fail to find the best price in 15-20 percent of trades.

Brokers use so-called smart order routing (SOR) to compare prices across the myriad platforms for a client’s order, chop the order into pieces and dribble them into trading venues to have the least possible impact on price.

Systems in Europe are often inefficient and are struggling to keep up with the pace at which markets are changing.

Bank-run dark pools see change to one U.S. SEC proposal

Two boys hold onto a rock-pool fence as they watch huge waves, whipped up by a large storm, crash onto rocks at Sydney's Narrabeen Beach.By Jonathan Spicer

NEW YORK, Dec 4 (Reuters) – Officials at two bank-run dark pools — the anonymous stock-trading venues that face sweeping rule changes — expect U.S. regulators to modify a proposal that would make it immediately clear where trading takes place.


EU regulators may take speedy action on “dark pools”

TENNIS/   FRANKFURT, Nov 17 (Reuters) – European Union securities regulators will complete their review of “dark pool” share trading venues by year end and may ask the bloc’s executive to take speedy action, a top supervisor said on Tuesday. (more…)