SEC may ban flash orders

Jeremy Hobson Aug 5, 2009

SEC may ban flash orders

Jeremy Hobson Aug 5, 2009


Bill Radke: The Securities and Exchange Commission is considering banning flash orders. This is a practice that happens so fast, you’d be forgiven if you missed it entirely. But it’s becoming very common, and some people say it gives certain investors an unfair advantage. Marketplace’s Jeremy Hobson joins us now live from New York. Good morning.

Jeremy Hobson: Morning Bill.

RADKE: Jeremy, first of all, a quick explanation of flash trading.

Hobson: Well, right Bill. You know that image you always see on TV and in the movies of the floor of the New York Stock Exchange?

RADKE: Yeah. A lot of waving and yelling going on.

Hobson: Exactly. Exactly. Everybody yelling things very loudly. Not a whole lot of trading actually goes on down there anymore. Most is done electronically these days and now about half of that electronic trading is done extremely fast — like faster than it takes you to hear my voice coming from New York in Los Angeles, there’s a little delay there. Well flash orders allow these high-frequency traders, or computers, to see what orders are about to take place on particular stocks and act on that information in less than a second. Sort of the way, in the old days, a trader might yell an order across the trading floor before he enters it into the system.

RADKE: OK. This sounds very modern, but not everybody’s happy with it?

Hobson: Right. Well a lot of money can be made and lost in a couple seconds if you just think about the difference on a daily basis between where the Dow is at 9:30 and where it is at 9:30 and 2 seconds. So Senator Chuck Schumer, Democrat of New York, wrote to the SEC last week saying he wants the practice banned because he says it gives high-frequency traders an advantage over ordinary retail investors. And the SEC says they are considering some action.

RADKE: OK. Unfair advantage. That sounds bad. So then everybody is for banning flash trading, right?

Hobson: No. Everybody’s never for anything. There’s obviously some people against the idea. Some people say flash orders helps them get better prices. And that if you ban it, they say trading volume will drop as traders look for other places where they can move as fast as they want to, Bill.

RADKE: Marketplace’s Jeremy Hobson live from New York. Thank you.

Hobson: Thank you.

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