U.S. flash crash panel calls for market overhaul

By Reuters
Posted Feb. 18 at 8:35 a.m.

U.S. regulators should stem the growing tide of anonymous stock-trading and consider charging high-frequency traders fees for the disproportionate amount of orders they send into the marketplace, said a panel of experts advising how to avoid another “flash crash.”

The report laying out 14 recommendations for the Securities and Exchange Commission and Commodity Futures Trading Commission contains some fresh ideas. Taken together, they would significantly overhaul the high-speed market that has gone increasingly electronic in the last decade.

Notably, the eight-member panel suggested the SEC consider forcing the banks, hedge funds and others that trade stocks outside of the transparent exchanges to provide a minimum level of price improvement.

It wants regulators to consider a so-called “trade at” order routing regime — something that would hurt the growing ranks of “dark pools” where trading is done anonymously.

The unprecedented May 6 market crash sent the Dow Jones industrial average down some 700 points before rebounding, all in a matter of minutes. It rattled investors, exposed flaws in the structure of markets, and set regulators on a mission to fix the system and restore confidence.

The panel also wants regulators to consider a way to better allocate the “costs imposed by high levels of order cancellations, including perhaps requiring a uniform fee across all exchange markets.” Other recommendations, such as expanding and modifying the ”circuit breaker” trading pauses, had been telegraphed by regulators.

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