Schumer Announces That NASDAQ Endorses Ban On 'Flash Trades'Exchange Would Welcome SEC Action Against Practice That Gives Advance Info To Certain Traders
Press Release
Schumer Announces That NASDAQ Endorses Ban On 'Flash Trades'Exchange Would Welcome SEC Action Against Practice That Gives Advance Info To Certain Traders
NASDAQ Among Multiple Market Centers That Currently Offer Program Allowing Certain Traders To Profit Off Of Advance Knowledge of Buying and Selling Activity
In Personal Call With Schumer, NASDAQ CEO Acknowledges Risks Posed By "Flash" Trades
Senator Hails NASDAQ's Willingness To Sound Alarm Bell About Unfair Practice That Puts Retail and Institutional Investors At Un
U.S. Senator Charles E. Schumer (D-NY) announced Tuesday that the head of the NASDAQ stock exchange supports his call to ban the practice of so-called "flash trading" that gives advance knowledge of stock orders to certain traders. Schumer said he was assured by Robert Greifeld, the CEO of NASDAQ, that the exchange, which has long prided itself on bringing transparency to public markets, began reluctantly offering the practice only after competing marketplaces did so.
Schumer hailed NASDAQ's acknowledgement of the risks to U.S. equity markets posed by the practice of flash trades, and praised the company's willingness to submit to a potential ban by the Securities and Exchange Commission. He added if other exchanges can follow NASDAQ's lead, it would mitigate the need for legislation banning the practice.
"NASDAQ deserves credit for stepping forward and sounding an alarm bell about this practice," Schumer said. "We cannot allow our marketplaces to enter a race to the bottom that caters to certain traders at the expense of other investors. NASDAQ has taken a major step towards restoring the standards of transparency and fairness that have made our markets the most trusted in the world. Other exchanges should follow NASDAQ's lead."
NASDAQ is just one exchange that offers "flash trading" programs. Others include the Kansas City-based BATS exchange, as well as a New Jersey-based electronic communications network called DirectEdge. Each of these marketplaces currently allow sophisticated high-frequency traders to gain access to trading information before it is sent out widely to other traders. For a fee, the exchange will "flash" information about buy and sell orders for just a few fractions of a second before the information is made publicly available. These traders, using super-fast computers, can then act on that early information to trade ahead of the pending orders. The practice can influence the pricing of stocks, experts say.
"Flash orders are a type of trade order used in high-frequency trading, a technique that has gained attention recently for contributing to the spike in trading volume and, according to critics, increased volatility on U.S. exchanges. According to one industry estimate, high frequency trading accounted for $21 billion in profits in 2008.
On Friday, Schumer wrote a letter to Mary Schapiro, the Chairman of the SEC, urging that the agency ban "flash trades" because it could create a two-tiered system. He added that if the agency failed to act, he would consider offering legislation.
Source