U.S. securities regulators are moving quickly to tighten rules for market makers and eliminate so-called stub quotes, to ensure there is liquidity during stressful times, people familiar with the escalating discussions told Reuters.
Aiming to avoid a repeat of the severe May "flash crash," the U.S. Securities and Exchange Commission and exchanges are eyeing minimum obligations for market-making firms that would force them to submit quotes that are less than 10 percent away from a stock's current price, three sources said.
One of the sources said a rule proposal could come within weeks. Another source said the SEC is trying to firm up the market-making rules before the regulator is forced to start crafting dozens of new rules prescribed by the Wall Street reform legislation.
Democrats are trying to pass the bill in the U.S. Senate so that President Barack Obama can sign it into law. After that happens, the SEC will be required to adopt rules to supervise hedge fund advisers and the over-the-counter derivatives market, among other things.
The sources requested anonymity because talks are ongoing.
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