The top U.S. securities regulator wants more feedback on its nearly year-old proposal to ban "flash orders," and has asked additional questions about the wisdom of the ban in the options market.
The Securities and Exchange Commission in September proposed to ban the orders, which some exchanges "flashed" for a fraction of a second to specific market participants before displaying them to the wider marketplace, giving exchanges a last chance to fill the orders in-house.
The ban plan was intended to level the playing field, and meant to apply for both the stock and option markets.
The SEC has now asked for public comment on the overall quality of flash executions in the options market, and on what effect a ban would have on its more recent proposal to cap option trading fees.
The SEC "is particularly interested in the extent to which flash orders, if they fail to receive an execution in the flash process, 'miss the market' by either receiving an inferior price through an execution against a displayed quotation or no execution at all," it said in a July 2 notice on its web site.
Public comments will be accepted until August 9. The last deadline was in November.
The SEC is reviewing the high-speed marketplace that has become increasingly fragmented and complicated over the last decade. The regulator raised several concerns even before the severe May 6 "flash crash" rattled investors and exposed flaws such as a lack of cross-market trading halts.
(There is no connection between flash orders, which are now largely phased out of the stock marketplace, and the flash crash moniker that has come to describe the May plunge.)
While flash orders were roundly criticized in the stock market, the ban proposal faced resistance in the options market from the beginning.
Heavyweight exchanges, the Chicago Board Options Exchange and the International Securities Exchange, have argued to preserve the orders, known as step-ups, which give them a small but important edge.
Defenders say flash orders give customers better prices and can save them from paying fees at rival venues that don't offer the service. Critics say they create a two-tied market that advantages sophisticated investors.
The SEC in April proposed capping option fees, a move meant to shine a light on the market's tiered pricing structure. The CBOE has said it would challenge this plan, too.
In its recent request for comment, the SEC said that some commentators expressed concerns that a flash order ban could raise access fees unless a fee cap was also instituted.
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