Will This Rule Put High-Frequency Trading Under A Magnifying Glass?

The SEC has adopted a new rule to help it track the activities of large traders with the biggest influence on the market.

The commission, which first proposed the new rule in April 2010, wants to better understand what is driving the market in light of the growth of high-frequency trading and incidents like last year’s flash crash.

Passed unanimously by the regulator, the new rule dictates that large traders will have to identify themselves to the SEC, which will then provide each one with an identification number.

The SEC will require broker-dealers that work with these traders to monitor their activities. Brokers will need to be ready to pass trading information to the regulator one day after the trading in question takes place.

Large traders are defined as those that trade in exchange-listed securities of at least 2 mn shares or $2 mn in any one day, or 20 mn shares or $200 mn in any month. Traders hitting these thresholds will be required to register with the SEC via a new form, Form 13H.

‘May 6 dramatically demonstrated the need to enhance the SEC’s ability to quickly and accurately analyse market events,’ comments SEC chairman Mary Schapiro in a statement.

‘The large trader reporting rule will significantly bolster our ability to oversee the US securities markets in a time when trades can be transacted in milliseconds or faster.’

[Article by Tim Human, Inside Investor Relations]

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