The stock market has transformed over the past decade into a place dominated by high-speed traders zapping orders to numerous exchanges, while regulators have been slow to react.
Now, the Securities and Exchange Commission is seeking to update the market's rules for the new era.
The SEC chairwoman, Mary Jo White, on Thursday unveiled a sweeping package of recommendations for new rules and other changes aimed at strengthening the structure of the market and improving disclosures for investors. The laundry list of proposed changes would touch virtually every corner of the market, including exchanges, private trading venues, brokerage firms and high-frequency traders.
The proposals, delivered in a speech to a financial industry audience, provide an answer to critics who have blamed the SEC for failing to do enough to curb market meltdowns and rein in lightning-fast traders. To many investors accustomed to only incremental changes in regulatory policy, the speech was a surprisingly detailed and comprehensive expression of the agency's plans.
It also signaled that White, a former prosecutor who as
sumed the top job at the SEC last year, plans to make market structure a top priority during her tenure.
"Many market structure rules and industry practices were developed with manual markets in mind. They cannot be expected to optimally address all of today's market practices," White said Thursday at an exchange and brokerage conference sponsored by Sandler O'Neill & Partners.
Although White was careful to point out the benefits that she said electronic trading had brought to the market, including lower trading costs, she also outlined a forceful critique of high-speed trading strategies, which use computer algorithms to place orders in milliseconds.
Saying she was focused on "aggressive, destabilizing trading strategies in vulnerable market conditions," White proposed that the SEC develop a new rule to install additional safeguards against any harmful volatility in stock prices caused by this speedy trading.
To improve the oversight of these traders, White said she had asked the SEC staff to draft a rule requiring the firms to register with the agency. In addition, she is seeking to close a loophole that allows trading firms to avoid registering with the Financial Industry Regulatory Authority -- Wall Street's self-regulator -- if they do their trading off traditional exchanges.