Ted Kaufman - United States Senator for Delaware

Kaufman Applauds SEC Chairman for Comments on Trading Speed Limits, Regulation of Dark Pools

June 11, 2010

WASHINGTON, DC – Senator Ted Kaufman (D-DE) released the following statement a day after Mary Schapiro, Chairman of the Securities and Exchange Commission (SEC), said at the International Organization of Securities Commissions (IOSCO) conference in Montreal that the SEC should explore whether to regulate the speed of trading and discourage the excessive diversion of order flow from public markets to dark pools (see Chairman Schapiro’s exact quotes below).  

Kaufman said: “I heartily endorse Chairman Schapiro’s comments that the SEC should explore whether to regulate the speed of trading and discourage the excessive diversion of order flow from public markets to dark pools. She clearly understands that the SEC needs to adopt rules that will ensure that our markets perform their two most important functions – serving long-term investors and helping companies to raise capital so that they can innovate and grow.  As the flash crash of May 6 made clear and many have long claimed, those two functions today are being undermined by a market structure that has become overly fragmented, undermined by the proliferation of dark pools and dominated by high frequency trading volume.

“I also applaud Chairman Schapiro for considering whether high frequency traders should be subject to speed limits and whether deep and valuable liquidity is being shielded from the public marketplace. Our markets should not be reduced to a battle of algorithms in which long-term investors are an afterthought and relegated to second-tier status, nor should the public ‘lit’ markets house only ‘exhaust’ order flow that is passed over by those who trade in dark pools.
 
“Recent events, including the May 6 flash crash, have revealed structural flaws that demand more than surface solutions. I’m extremely encouraged that through her words yesterday Chairman Schapiro has crossed the Rubicon and committed herself to the changes we need for our markets to work properly.  She has taken a vital first step, and I will continue fully to support Chairman Schapiro if she follows through and accomplishes the difficult but critically important work that lies ahead.”

At the IOSCO conference, Chairman Schapiro was reported to have said the SEC should “explore whether bids and orders should be regulated on speed so there is less incentive to engage in this microsecond arms race that might undermine long-term investors and the market’s capital-formation function. The markets have to serve that function for companies to raise money, create jobs and allow the economy to grow.” Chairman Schapiro added that the SEC is “looking at whether and to what extent pre-trade price discovery is impaired by the diversion of desirable, marketable order flow from public markets to dark pools.”

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