US imposes new rules on high-speed traders

Jul 26, 2011
Chairman of the US Securities and Exchange Commission Mary Schapiro listens during a meeting on July 18, at the Treasury Department in Washington, DC. US regulators on Tuesday announced new rules aimed at shedding light on the secretive industry of computerized high-speed trading, which has been blamed for destabilizing financial markets.

US regulators on Tuesday announced new rules aimed at shedding light on the secretive industry of computerized high-speed trading, which has been blamed for destabilizing financial markets.

The said the new rules were designed to help it deal with events like the "flash crash" of May 6, 2010, when the fell nearly 1,000 points in a few minutes.

"May 6 dramatically demonstrated the need to enhance the SEC's ability to quickly and accurately analyze market events," SEC chairman Mary Schapiro said in a statement.

Under the new rules, traders whose market transactions exceed two million shares or $20 million per day will need to disclose more information about themselves to the SEC, the agency said.

"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," Schapiro said.

The SEC drafted the new rules after a lengthy analysis of the "flash crash", which was triggered when a trader using a high-speed trading program placed an order to sell $4 billion of futures contracts.

Other high-speed trading programs followed suit, leading to a huge sell-off in which the Dow plunged close to 1,000 points, although it recovered most of its losses within minutes.

The incident spooked investors and led to criticism of high-speed trading firms, who have been estimated to account for as much as 70 percent of all trades conducted on US .

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User comments : 36

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GDM
3.8 / 5 (10) Jul 26, 2011
About time!
that_guy
4.4 / 5 (9) Jul 26, 2011
Police: "Quick! Tell us more about yourself. NOW!"
Robber: "I'm a bank robber"
Police: "Come back in 2 to 4 months, and we'll find out if there's a way to prosecute you"
*Robber takes stolen money and leaves*

So, you have these companies that have systems who's sole purpose is to make money like a parasite, using systems to pull money from statistical stock variation rather than good business.

I think perhaps they should have a rule to the effect that you cannot purchase and sell stock in a company in the same 24 hour period. At least that would give them some incentive to invest based on actual good business sense.

Tell me what these companies offer to our society? They don't produce any goods, they don't offer any services except to a very small few people who profit from it directly, they don't offer any liquidity to the businesses they 'invest' in, as the money comes back out milliseconds later...
Jayman
4.3 / 5 (6) Jul 26, 2011
I think they should tighten the limit to $1 million or thereabouts. $20 million a day is way too high and these guys could have trading accounts in the name of family members too. They almost always work as a cartel.
Husky
not rated yet Jul 27, 2011
how about SLOWING the down jones overall trading speed of all transactions if it goes up or down too sharply, this will buy time for things to colld down in a more natural way
Gawad
3.7 / 5 (6) Jul 27, 2011
Just wait till Marjon gets wind of this. This is going to be a fun thread.

"Government interference! Regulation! Conspiracy! Why do you sanction government theft and its monopoly on violence? Liberal socialist progressive scum!"

Did I leave anything out? :)
Mahal_Kita
1.8 / 5 (5) Jul 27, 2011
I think perhaps they should have a rule to the effect that you cannot purchase and sell stock in a company in the same 24 hour period.


Have you traded stocks or commodities yourself even once? If so, then you would know that what you are suggesting is utter BS.. Excusez le mot..
Mahal_Kita
3 / 5 (2) Jul 27, 2011
how about SLOWING the down jones overall trading speed of all transactions if it goes up or down too sharply, this will buy time for things to colld down in a more natural way


There is a mechanism in place now that stops trading when a certain position in time is reached. Call it threshold.
that_guy
5 / 5 (5) Jul 27, 2011
I think perhaps they should have a rule to the effect that you cannot purchase and sell stock in a company in the same 24 hour period.


Have you traded stocks or commodities yourself even once? If so, then you would know that what you are suggesting is utter BS.. Excusez le mot..


I don't think I'm suggesting the final solution, but the point of the stock market was originally to help companies raise capital in order to embark on large projects and financing. Obviously there are parts of it that do not positively contribute to this cause or any positive macro-economic affect at all. The idea of regulation should be pointed back into the direction of allowing the stock market to do what it was designed for.
that_guy
5 / 5 (6) Jul 27, 2011
Have you traded stocks or commodities yourself even once? If so, then you would know that what you are suggesting is utter BS.. Excusez le mot..


PS - your statement is kind of BS. I have money in the stock market.

The majority of private citizens who trade stocks do less than a few trades a week. A lot of investors want to invest in a solid company and are looking for solid long term returns. They are not trying to buy and sell the SAME company in one day.

The only people who might be hampered by this suggestion would be professionals, or other people who are trying to make money quickly...note that a lot (But not all) of these activities are purely aimed at making money off changes in the stock market, rather than for investing in a good company to profit off a good product.

Please note that I understand some faster paced mechanisms need to be allowed in certain areas of the market - that would require more discussion than a soundbite.
Gawad
4.3 / 5 (6) Jul 27, 2011
One proposal that has been floated was a transaction tax (Tobin tax or Spahn tax) of something on the order of 0.1%

So for example, a 20 000 000$ transaction would be subect to a 20 000$ tax. This would not inhibit legitimate investment, and would dramatically reduce the kind of speculation that leads to market volatility. Remember, the point of this type of tax is not to raise revenue (though it will also do that to some extent) but to discourage destructive behaviour, and behaviour that's destructive to *other* people at that. In a sense, it's a sin tax, like what is put on a pack of cigarettes to help discourage smoking. It's not perfect, but it can be part of a solution.
FrankHerbert
1.1 / 5 (58) Jul 27, 2011
Just wait till Marjon gets wind of this. This is going to be a fun thread.

"Government interference! Regulation! Conspiracy! Why do you sanction government theft and its monopoly on violence? Liberal socialist progressive scum!"

Did I leave anything out? :)


The funniest part about Marjon is that he acts like the government's monopoly on violence (like this is a big secret) is his ace in the hole. Do you want the guy down the street having a monopoly or even a slight foothold in the market of violence? Thought not.
that_guy
5 / 5 (4) Jul 27, 2011
One proposal that has been floated was a transaction tax (Tobin tax or Spahn tax) of something on the order of 0.1%

It's not perfect, but it can be part of a solution.

I think that this is a better solution than you think. The primary reason for these high speed mechanisms is to identify trading data (Such as an order call) that indicates a slight bump or dip is about to come. They use powerful computers, and high speed connections to purchase and sell in between other people's trades over microseconds in order to make a profit of a fraction of a cent on the dollar. Speed is so crucial, that just being 2 miles closer to the trade is an advantage.

even the tiniest fee would slow down this kind of trading.

When two algorithms work in a loop, or it loops back against the market, it can cause a feedback mechanism - causing an effect similar to when competing Amazon items are priced in relation to each other, and suddenly you find a cd on sale for 12Million.
unknownorgin
1 / 5 (3) Jul 28, 2011
Yes, tell us more about yourself and your bank accounts to the IRS. The reasons they give for the new rules are nothing more than poorly thought out excuses to hide the real intent of collecting taxes that may slip by. Why did they come up with the idea that telling them about yourself would somehow prevent market swings instead of just telling the truth about the real purpose of the rules?
Jotaf
5 / 5 (3) Jul 31, 2011
I wish I could rate that_guy and Gawad's posts with 6 stars -- they are spot on. We just need to slow down the rate of trade or cause some kind of attrition through a really tiny tax.

Currently, you can just trade back and forth the same stock at virtually no cost. This makes for a very unstable system, as any engineer will tell you.

Slowing down the market would also help (even a 1 hour re-sell limit would do), as it would give time for people to make more informed decisions instead of the current knee-jerk reactions. But of course this won't happen, since the most powerful people depend on the current system and have no interest in stabilizing it.

I suspect that the stock market is just a ruse for big traders to slowly take money away from small investors, very different from its initial goal of allowing investment in companies. Now companies can fail, regardless of how successful they are at their core business; people just have to believe the company will fail and start to sell.
Gawad
3.7 / 5 (3) Jul 31, 2011
Well, here's to 6 stars for you too, Jotaf!
Caliban
5 / 5 (1) Jul 31, 2011
Another rule I would propose is that ALL OF THE MONEY should have to be moved from the buyer's account to the seller's account, for each and every transaction.

When a large trader can leverage funds on deposit at a ten-to-one ratio, there is no end to the amount of profit to be made from these purely "speculative" high-speed transactions, which is the only intent behind them in the first place- as a way to game the system with impunity, and make virtually unlimited profits without adding any value whatever- in fact, as was already pointed out- just the opposite, and destabilize the system.

Just a little thought experiment for you: How much "leverage" are you able to exert in the market with your 5-10k trading account?

I thought so. These trading technologies and the rules under which they operate were created by, of, and for an elite group of the ever-more-fantastically wealthy. Your little 401(K) or trading account exists only as a source of income for them to exploit.

Caliban
not rated yet Jul 31, 2011
In fact, I would advocate for a much more Draconian regulatory architecture, and strip the "market" down to only real goods, and eliminate trading in any derivatives altogether. No more hedge funds. No more fund funds. No more mutual funds, Money Market funds, Currency trading, or any of the other purely speculative instruments- all, by the way, designed and intended to lure the unwary with promises of high returns and investment safety, just so that they can be raided by the Big Fish once they have collected sufficient value to be harvested(the baloon inflation mechanism). And make no mistake and to make the analogy yet more explicit: that is all that, in aggregate, small, individual investors represent to the elite traders -a fat, pulsing, distended vein to be sucked dry.

The market needs to be placed back on a performance base, as a way to capitalise business and public works, instead of being the blood collection device from which the vampire squid feeds at its leisure.

wealthychef
not rated yet Jul 31, 2011
I think if you just eliminate sub-minute arbitrage, that would do most of what is needed. Don't let prices change more than once per minute. Ta da!
ryggesogn2
1 / 5 (2) Jul 31, 2011
a slight foothold in the market of violence?

That is the purpose of the second amendment, to limit the states monopoly on violence.
the government's monopoly on violence (like this is a big secret)

It's apparently no secret to 'progressives' who desire to increase its power and keep control of that power.
But if you acknowledge that govt has the monopoly on power, why do you blame corruption on those evil capitalists? If the capitalist buys politicians to gain advantage to that power, why not blame agent of the govt selling that power?
If the capitalist can't buy govt power, his only recourse is persuasion. The 'progressive' then asserts the capitalist will then hire an army to force people to buy his products. (That's the 'progressive' way.) Such an army is an expense to the capitalist and there are risks his competitors will do the same.
The capitalist then needs to decide his motive, profit or power. If it's power, he the then becomes a 'progressive'.
FrankHerbert
0.8 / 5 (53) Jul 31, 2011
If the capitalist can't buy govt power, his only recourse is persuasion.


But the capitalist can (and does) because our laws don't prevent it. More regulations are required.

The capitalist then needs to decide his motive, profit or power. If it's power, he the then becomes a 'progressive'.


No true capitalist. http://en.wikiped...Scotsman
FrankHerbert
0.8 / 5 (53) Jul 31, 2011
Marjon's Logic:

If someone is good they are a capitalist because capitalism is good and good people are capitalists and I'm a good capitalist because capitalism is good.
Bonkers
1 / 5 (1) Aug 01, 2011
what's the problem exactly?
The "flash Crash" cost the guilty traders a lot of money, disincentive enough in my mind - they could do with learning some control theory and to understand where they are increasing instability. Laplace transforms are not that bad after Black-Scholes.
Anyway, the input of the "fast traders" is a benefit to the system, it adds liquidity, you will always find a buyer (or a seller) - and therefore will strike at a price that is closer to the inherent value of the stock.
antialias_physorg
5 / 5 (2) Aug 01, 2011
think they should tighten the limit to $1 million or thereabouts. $20 million a day is way too high

We'll just see the individual companies splitting into small/linked subsidiaries to undermine the 20 million (or 1 million) limit. This looks more like a PR stunt to appease the masses rather than an effective remedy.
ryggesogn2
1 / 5 (2) Aug 01, 2011
But the capitalist can (and does) because our laws don't prevent it. More regulations are required.

Bribing govt officials is not illegal?
The only law needed for political contributions is full disclosure. The opponent of a politician, the media and the voter have the responsibility to make judgments regarding donors.

Is not the NYSE a private company? Are they concerned about this?
"enhance the SEC's ability to quickly and accurately analyze market events,"
Why does the govt want to control the markets?

BTW, what is the DJIA? It has been tweaked and modified so many times what does it truly mean, dropped 1000 points?
ryggesogn2
1 / 5 (1) Aug 01, 2011
"The Dow Divisor is currently 0.132129493.[22] Presently, every $1 change in price in a particular stock within the average, equates to a 7.57 (1/0.132129493) point movement."
1000/7.57 = $132/30 = ~$4/company.
So if each company in the DJIA drops $4/share, the DJIA drops 1000 points. What's the big deal?
FrankHerbert
0.8 / 5 (52) Aug 01, 2011
Bribing govt officials is not illegal?


I didn't say there weren't laws against it. I said, "our laws don't prevent it." More accurately it's the lack of enforcement of these laws. The DoJ could have at least brought a case against Lloyd Blankfein if not successfully prosecuted it. This would prevent financial abuses.

I know Goldman Sachs was Obama's top (actually second) donor. The only financial institution in Obama's top 5. What about McCain's top 5? Goldman may not be first (it's fourth), but all 5 of his top donors are financial institutions. Lehman Bros and Bear Stearns round out his top 20.

http://blog.franc...ibutors/

I'm sure Marjon will use some form of twisted logic to tell us how much worse democrats/obama/darth vader are about this, but the truth is (and he knows this) is it's a game of hot potato and whoever is holding it when the timer runs out loses. If it runs out.
ryggesogn2
1 / 5 (2) Aug 01, 2011
"our laws don't prevent it.

What law would?
The only laws that prevent anything are the laws of nature.
ryggesogn2
1 / 5 (2) Aug 01, 2011
all 5 of his top donors are financial institutions.

Then support the end of the Federal Reserve system.
But since that was a creation of the 'progressives', reap what you have sown.
FrankHerbert
0.8 / 5 (52) Aug 01, 2011
What law would?
The only laws that prevent anything are the laws of nature.


Natural law is not part of the laws of nature. You are intentionally conflating different terms from different sciences because they sound similar (i.e. it's easy to do).
ryggesogn2
1 / 5 (2) Aug 01, 2011
I meant what I said. Your are prevented from jumping off of the earth by gravity.
The laws of nature DO prevent.
The laws of man may prevent, but it requires a willful act to comply.
No law of man can prevent its violation by man.

Statists seem to beleive that by creating a law, some act will be stopped. Why? What's the incentive?
Market forces act upon self-interest.
Incentivize the behavior desired and you will get more of it.
FrankHerbert
0.8 / 5 (52) Aug 01, 2011
You are doing exactly what I said you were doing, conflating natural law with the laws of nature. "Market forces act upon self-interest don'tchyaknow" IS NOT comparable "Your are prevented from jumping off of the earth by gravity."

One is hard science; the other is not, and you are conflating them.
ryggesogn2
1 / 5 (2) Aug 01, 2011
Just pointing out that 'making a law' won't guarantee prevention of anything.
Why would passing more laws have any affect except to increase the size of the govt, make work for lawyers adding more costs to the economy?
FrankHerbert
0.8 / 5 (52) Aug 01, 2011
US CODE BLAH BLAH SECTION BLAH BLAH

Anyone under the employ of any banking institution is hereby prohibited from making donations to politicians of any kind under penalty of life imprisonment.

Or better yet:

Anyone under the employ of a corporation exceeding 1,000 employees is hereby prohibited from making donations to politicians of any kind under penalty of life imprisonment.

I'd even throw unions in for the latter option!
Gawad
3.7 / 5 (3) Aug 01, 2011
US CODE BLAH BLAH SECTION BLAH BLAH

...
Or better yet:

Anyone under the employ of a corporation exceeding 1,000 employees is hereby prohibited from making donations to politicians of any kind under penalty of life imprisonment.

I'd even throw unions in for the latter option!

You know, limiting corporate infulence by limiting donations seems like a no-brainer. Otherwise corporations can simply buy politicians. In Canada the practice is illegal and even individual donations are capped at 1100$ (to help prevent corporations from using individuals as conduits for influence). The only entities that are allowed to run campaing ads are the political parties themsleves. Again, seems like a no-brainer, which is why I was rather shocked that US Supreme Court last year overturned this limitation, citing first amendment provisions. Now, who needs to give money to the politicians they support? Just spend unlimited funds campaigning for them. They'll be *very* greatful!
ryggesogn2
1 / 5 (3) Aug 01, 2011
You know, limiting corporate infulence by limiting donations seems like a no-brainer.

1. It's been tried, and failed.
2. It violates the US Constitution. Does Canada have a Constitution? I know UK does not.
3. Do you agree with limiting donation from socialist groups like unions or George Soros front groups?

Of course the 'progressives' will never promote the obvious solution. End the govts fascist control over the economy. Abolish the Federal Reserve as a good first step.

In case anyone notices, I mistakenly gave Frank a 5. My bad.
Gawad
3.7 / 5 (3) Aug 02, 2011
Marjon,

1. It has also succeeded...in Canada. What prevents it from succeeding in the States? That's not a rhetorical question. BTW, your Supreme Court didn't overtrun that ban based on its effectiveness or lack thereof (according to you at any rate), so what is the basis for your claim of ineffectiveness?

2. I understand how it could be seen as conflicting with the 1st amendment, and political speech is definately a type of speech this is meant to protect.

Canada does have a constitution and a bill of rights, but we don't have the same level of obsession with free speech and firearms. While free speech is generally protected, we have stronger curbs on speech that is considered socially damaging, AFAIK.

In any case, political ads are allowed here, but the CRTC has strick rules to promote fairness:

http://www.crtc.g...b309.htm

3. Absolutely. The only entities that should be allowed to donate, IMO, are ones that can cast a ballot: individual adults.

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