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SEC chairwoman outlines proposals for dark pools, HFT

SEC Chairwoman Mary Jo White
SEC Chairwoman Mary Jo White

The SEC will consider requiring more disclosure of institutional trades made through dark pools and other automated trading systems, and require high-frequency traders to register as broker-dealers, under proposals unveiled Thursday by Mary Jo White, SEC chairwoman.

Although Ms. White acknowledged that the Financial Industry Regulatory Authority has begun posting weekly trading volumes of dark pools on its website and dark-pool operators have offered greater transparency of their operations, “we must continue to examine whether dark trading volume is approaching a level that risks seriously undermining the quality of price discovery provided by lit venues.”

Concerning HFT, Ms. White said staff at the Securities and Exchange Commission will make recommendations on rules that would require active proprietary traders to register as dealers and would mandate that dealers that trade in off-exchange venues meet FINRA membership requirements.

“Dealer registration and FINRA membership should significantly strengthen regulatory oversight over active proprietary trading firms and the strategies they use,” Ms. White said.

Ms. White also said the SEC will look at whether current regulations, such as the trade-through rule of Regulation NMS, “have contributed to excessive fragmentation across all types of venues. We also will be considering whether the current regulatory model for exchanges and other trading venues makes sense for today's markets.”

Ms. White said current rules developed in the 1990s “draw a sharp distinction between exchanges and other trading venues, a distinction that has been blurred considerably over the last 20 years. A core focus of our comprehensive review will be whether and how the SEC's regulatory approach for trading venues should be changed to reflect significantly changed conditions.”

The rules will be considered by the commission “in the coming months,” Ms. White said. She did not elaborate.

Any rule changes would require a public comment period and a vote by the full commission.

The full text of Ms. White's speech Thursday at the Sandler O'Neill + Partners Global Exchange and Brokerage Conference is on the SEC's website.