The markets aren’t rigged — they’re just a little shady, and Mary Jo White, the chair of the Securities and Exchange Commission, wants to shine more light into their dark pool recesses.
White on Thursday proposed a package of changes to the exchange and high-frequency trading industries, including requiring the super-fast traders to register as broker-dealers when they trade on less transparent trading platforms, known as dark pools.
“Transparency has long been the hallmark of the US securities markets, and I have been concerned by the lack of it in these dark venues,” she told brokerage and exchange heads at an industry conference in New York.
That lack of transparency can “sometimes distract from market quality,” said White, who took over as the country’s No. 1 Wall Street regulator last year, promising to step up enforcement.
Translation: Prices might be higher for a stock than they should be.
The registration rule is expected to have a huge impact on the industry because it would force unregulated HFTs to undergo the same scrutiny as brokers from Merrill Lynch, said one broker who attended the conference.
HFT has undergone more scrutiny from the government in the two months since the publication of Michael Lewis’ “Flash Boys.”
The book alleges that markets are rigged because HFTers, who use computer algorithms and measure their trades in microseconds, can take advantage of slower investors by bidding up the market.
Algorithmic traders “likely represent over a majority of trading volume,” White said.
The last time the SEC did a comprehensive overhaul of exchanges was in 1998.
That overhaul led to the creation of dark pools, also known as “alternative trading systems,” which aren’t as regulated and don’t display prices until after stocks trade.
White’s speech, given at the penthouse of Le Parker Meridien, amounted to an announcement of rules she was asking her commission to make.
That process could take months, she said.
White also proposed:
- Limiting conflicts of interests for brokers and making sure traders can’t make stock prices more volatile.
- The creation of a market structure advisory committee, which would propose rules for HFTs.
While speed itself wasn’t a problem, White questioned whether it was still working for the smallest of investors.
“We must consider, for example, whether the increasingly expensive search for speed has passed the point of diminishing returns,” she said.