WASHINGTON – The Securities and Exchange Commission’s proposed large trader reporting system would seriously hinder large floor traders and brokerages, according to industry executives.
"The biggest issue with block trading is information leakage," said Mark Van Meter, head of equity trading at Victory Capital Management, at the Mutual Fund Directors Forum’s 10th Annual Policy Conference, on Critical Issues for Investment Company Directors. "Whenever you call your broker, you're showing your hand. Information is lost every time you tell someone."
Van Meter said electronic trading allows firms or individuals to trade a large number of stocks without telling anyone what they're doing. Experts say fewer than half of all trades occur on listed exchanges, and the combination of trading algorithms and high-frequency systems makes it easy to disguise large orders by breaking them up into small pieces. Disguising large trades is critical to best execution, experts say.
The SEC also proposed prohibitions on options exchanges from impeding access to displayed quotations, and aims to limit the fees an options exchange can charge investors. "This rule is designed to increase transparency in the markets and promote greater fairness and efficiency," said SEC Chairman Mary Schapiro. "It is important that investors have the ability to access the best prices available regardless of the exchange that is posting the quotation. And, those investors should have a better understanding of the true cost of executing a transaction."
Both proposals are open for public comment for 60 days after publication in the Federal Register.