SEC Will Track Biggest Traders’ Activity
The U.S. Securities and Exchange Commission will impose a system to monitor the behavior of high- frequency trading firms and hedge funds under new reporting standards for the most active market participants.
SEC commissioners voted 5-0 today to adopt a tracking system for firms that buy and sell at least 2 million shares a day or meet other volume standards. The system, initially proposed three weeks before the May 2010 crash that temporarily erased $862 billion in U.S. share value, aims to help guard against market abuse and manipulation.
“The collection of this information is particularly important given the increasingly prominent role played by very active market participants including high-frequency traders,” SEC Chairman Mary Schapiro said before the vote.
The system, which would monitor firms that execute $20 million of equities a day or $200 million in a month, gives the SEC access to non-public data maintained by the traders’ broker- dealers, who would have to provide it upon request. After the rule takes effect in about two months, about 400 large traders would have to identify themselves within 60 days and broker- dealers would have to begin maintaining transaction records within seven months, according to the SEC.
Broker-dealers will be responsible for most of the costs of tracking the data and reporting it to the SEC. The agency estimates a $35 million up-front cost for the industry and about $17 million a year to comply.
Audit Trail
The idea, which had been proposed and rejected twice before, is a more limited reporting system than the SEC’s ongoing project to set up a so-called consolidated audit trail. That later system is expected to provide a complete, real-time picture of what the market is doing.
The SEC’s rule should have been a “coordinated effort with the development of the Consolidated Audit Trail,” Randy Snook, executive vice president at the Securities Industry and Financial Markets Association, said in a statement. The Wall Street trade organization encourages regulators “to adopt rules that create universal standards that are not duplicative,” Snook said.
In a separate 5-0 vote, SEC commissioners voted to adopt a rule cutting credit ratings from eligibility requirements for firms seeking fast-track approval for securities offerings.
In the SEC’s first rule under a Dodd-Frank Act directive to replace credit ratings with a different standard of creditworthiness, the agency will allow so-called short-form registrations by firms that have issued $1 billion of non- convertible securities over the prior three years.
$750 Million Threshold
Unlike the initial proposal, the final rule added eligibility criteria including whether a firm has $750 million outstanding in non-convertible securities issued in primary offerings, is a wholly owned subsidiary of a “well-known seasoned issuer” or is a majority-owned operating partnership of a real estate investment trust qualifying as well-known.
The SEC expects its new standards to include roughly the same number of issuers eligible for shelf access in the old system.
Commissioners also voted to re-propose an April 2010 measure aimed at expanding accountability and enhancing quality related to asset-backed securities when issuers seek so-called shelf registration to expedite offerings. Today’s vote reopens that measure for a 60-day comment period.
The revisions are related to the Dodd-Frank prohibition on credit ratings enacted after the original proposal, requiring the SEC to cut out the rating criteria. The SEC is also seeking more comments on the proposed disclosure of specific data about individual loans in securities’ asset pools.
To contact the reporter on this story: Jesse Hamilton in Washington at jhamilton33@bloomberg.net
To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net
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