US probes trad­ing in frag­mented mar­kets

The Pak Banker - - International3 -

WA S H I N G T O N : Se­cu­ri­ties reg­u­la­tors are prob­ing whether traders have in­ten­tion­ally ex­ac­er­bated volatil­ity or un­law­fully ex­ploited the deeply frag­mented stock mar­kets, Se­cu­ri­ties and Ex­change Com­mis­sion Chair­man Mary Schapiro said on Wed­nes­day.

A lack of sur­veil­lance across the 50 some trad­ing venues, and be­tween the mostly elec­tronic stock, fu­tures and op­tions mar­kets was a clear fo­cus at a con­gres­sional hear­ing into how to avoid a re­peat of the May 6 "flash crash."

Since the un­prece­dented mar­ket plunge, the SEC and the Com­mod­ity Fu­tures Trad­ing Com­mis­sion have been un­der in­tense pres­sure to bol­ster the in­tegrity of the mar­kets now seen by many as flawed and un­sta­ble.

SEC en­force­ment staff are in­ves­ti­gat­ing whether mar­ket par­tic­i­pants "in­ten­tion­ally con­trib­uted to mar­ket volatil­ity or manipulated the price and vol­ume of se­cu­ri­ties at the ex­pense of in­no­cent in­vestors," Schapiro told a con­gres­sional panel.

Schapiro said her staff was ex­am­in­ing trad­ing prac­tices such as "spoof­ing," which in­cludes when a trader sub­mits many bids and of­fers with no in­ten­tion of car­ry­ing them out.

The flash crash re­ver­ber­ated across as­set classes, rocked in­vestor con­fi­dence in the vast trad­ing net­work and has prompted law­mak­ers to de­mand fixes to the mar­kets.

At the hear­ing, Sen­a­tor Carl Levin dropped a stack of paper mea­sur­ing "five inches high" that he said con­tained the mes­sage and trad­ing traf­fic across all ex­changes in one ma­jor U.S. stock "over the course of one sec­ond."

"There is a long, long way to go par­tic­u­larly with re­spect to co­or­di­nat­ing mar­ket pro­tec­tions and sur­veil­lance across mar­ket venues and across the fu­tures, op­tions, and eq­ui­ties mar­kets," said Levin, who along with fel­low Demo­cratic Sen­a­tor Jack Reed, chaired Wed­nes­day's hear­ing.

Levin said that co­or­di­nated pro­tec­tions across as­set classes "isn't even on the draw­ing board," adding: "It took the CFTC and the SEC five months of in­tense work to fig­ure out what hap­pened over a few min­utes on May 6."

The SEC is painfully aware that it can­not see the en­tire mar­ket­place or eas­ily col­lect data from the dozens of trad­ing venues. The reg­u­la­tor has pro­posed to im­prove mar­ket sur­veil­lance by track­ing stock or­ders across all U.S. eq­uity mar­kets-a plan gen­er­ally sup­ported by mar­ket par­tic­i­pants. Kevin Cronin, the global head of eq­uity trad­ing at In­vesco, told law­mak­ers that reg­u­la­tors need to be able to an­a­lyze the data. Trade­worx CEO Manoj Narang agreed that reg­u­la­tors needed bet­ter an­a­lyt­i­cal tools.

"Reg­u­la­tors need to see mar­kets in the same way its most ac­tive par­tic­i­pants see it," said Narang, whose hedge fund runs high fre­quency trad­ing strate­gies. Schapiro and CFTC Chair­man Gary Gensler are look­ing for po­ten­tial reme­dies for the mar­kets, where high­fre­quency al­gorith­mic traders are in­creas­ingly dom­i­nant.

A re­port by their agen­cies found that a large trade by a sin­gle trader helped send the Dow Jones in­dus­trial av­er­age down nearly 700 points on May 6 in min­utes be­fore re­cov­er­ing. -Reuters

GAZA CITY: A Pales­tinian woman walks next to bam­boo fur­ni­ture, dis­played out­side a fam­ily bam­boo work­shop, in Gaza City on Thurs­day. Is­rael de­cided Wed­nes­day to al­low in­creased ex­ports from the Gaza Strip, fur­ther eas­ing its block­ade of the ter­ri­tory run by the mil­i­tant Pales­tinian Ha­mas group. -Reuters

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