SEC Passes New Regulation to Track Large Traders

Reuters

U.S. securities regulators adopted rules on Tuesday that could help investigate a future flash crash by better tracking the activities of large traders like banks, hedge funds and big proprietary trading companies.

The Securities and Exchange Commission first proposed its large-trader reporting system in April 2010, but a brief period of volatile trading the following month, that became known as the ``flash crash,'' highlighted the need for quicker and more detailed data.

Continue Reading Below

The approval of the large trader reporting system in a 5-0 vote is the latest action by the SEC to revamp market structure. The SEC is trying to level the playing field for investors and make markets more transparent.

The agency's long to-do list still includes new rules for anonymous trading pools and flash orders that exchanges show to some traders before revealing them to public markets, as well as the creation of a consolidated audit trail.

The large trader rule ``would significantly bolster our ability to oversee the U.S. securities markets,'' SEC Chairman Mary Schapiro said.

Each large trader would be assigned a unique identification number and would be required to provide that information to the trader's brokers.

Brokers would then need to keep track of that ID number, along with the timing of certain trades. That transaction data would be readily available to the SEC upon request.

The proposed rule defines a large trader as a firm or individual whose trades equal or exceed 2 million shares or $20 million a day, or 20 million shares or $200 million during a month.

The now infamous May 6, 2010, flash crash, in which the Dow Jones industrial average plunged some 700 points in just minutes before rebounding, exposed weaknesses in the regulatory system.

Among them was a lack of centralized and easy-to-access information, leaving the SEC at the mercy of the exchanges and even traders to get the trading data the agency needed to reconstruct what went wrong.

U.S. regulators, after months of study, concluded that a computer-driven sale worth $4.1 billion by a single trader helped trigger the flash crash.

In other actions on Tuesday, the SEC voted 5-0 to finalize a rule required by the Dodd-Frank financial oversight law that would strip out references to credit-ratings from certain government regulations and forms.

That rule would strip rating references from the conditions that the SEC places on companies seeking to qualify for ``short form registration'' when offering securities for a public sale, and would impose new alternative criteria to determine if companies can qualify for short-form registration.

The SEC also re-proposed and sought fresh comments on an asset-backed securities regulatory plan that was initially proposed before Dodd-Frank was enacted.

The SEC also voted to re-propose portions of a rule outlining when asset-backed securities issuers can qualify for an expedited securities shelf offering. It will seek additional comments on the loan disclosure provisions in the initial proposal.

(Reporting by Sarah N. Lynch; Editing by Tim Dobbyn and John Wallace)

What do you think?

Click the button below to comment on this article.