The top U.S. securities regulator said the agency is in the process of laying out a plan to make markets more stable following the May "flash crash" and is zeroing in on trading algorithms that "go crazy."
The Securities and Exchange Commission must deal with computerized trading code that disrupts the marketplace, Chairman Mary Schapiro told the Securities Industry and Financial Markets Association annual conference on Monday. "We hope this will lead to a more stable marketplace."
Under pressure to bolster the integrity of the markets, the SEC has rolled out a program to protect companies' stocks in a market crisis. On Monday, the SEC adopted a plan to eliminate so-called stub quotes, quotes that are priced well off the public price of a stock.
But Schapiro said more has to be done and that her agency would continue to work on improving the structure of the markets, now deeply fragmented and dominated by high-frequency trading.
"Some high-frequency traders are not registered or regulated at all," Schapiro told reporters on the sidelines of the conference. "There's an issue about the use of disruptive algorithms in the marketplace, that contribute dramatically to volatility and instability."
She said the SEC is considering "certain throttles" that would govern the way algorithms impact the marketplace, possibly slowing them down.
Under the new Dodd-Frank regulation law, the SEC must craft more than 100 rules for the financial industry, including new regulations for the $615 trillion over-the-counter derivatives market and hedge funds.
Although the SEC must adopt the bulk of the new rules by July 2011, Schapiro said that fine tuning the markets' structure continued to be a top priority.
"We will stay focused on this no matter what," she said.
Schapiro also said that the new law was not punitive, and that some areas, such as the off-exchange derivatives market and hedge funds, were sorely in need of federal supervision.
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