It’s a day of reckoning today for flash traders, as some people predicted some weeks ago.
So now -- as John Goff explains neatly,
right here -- the SEC has finally lowered the boom on a practice that by most fair assessments is, well, not fair. It gives certain rich and powerful traders a leg up on everybody else (the SEC has a pretty good fact sheet
posted here).
To give you an idea of how non-controversial it is to close the door on flash traders, the SEC voted 5-0 for the ban
(fine print here). They have to do one more ballot before it becomes official, but it’s hard to imagine a commission member changing his or her mind in the next round and deciding it’s OK, after all. Only about 3 percent of stock orders in the U.S. are placed by flash traders, but still ...
The practice is permitted only because of an explicit exemption somebody got into government regulations a few years back. Major exchanges in the U.S. had allowed it until it recently created enough bad press for all but DirectEdge to drop it.
Most of the reporting on this issue notes that flash traders have an advantage of “less than a second” over other traders, and SEC Chairman Mary Schapiro calls it a “momentary head-start,” language that implies it’s not that big of an edge. But a half-second – or 500 milliseconds as traders say – is a long time in this age of computer-driven trading.
Next in the agency’s firing line: big traders who hide what they're doing in so-called dark pools, a cousin to flash traders.
