SEC Probing "Quote Stuffing"
The Securities and Exchange Commission is probing the practice of "quote stuffing," which is a practice of trading in unusually large numbers to buy or sell stocks in fractions of a second that are almost immediately canceled, causing a distortion of stock prices.
A report from the Wall Street Journal citing people familiar with the situation, the SEC is looking into what role if any the practice of quote stuffing played in the "flash crash" on May 6 when in a matter of minutes the Dow Jones industrial average fell 700 points.
Traders have attributed the phenomenon of quote stuffing has risen in frequency in recent years due to the emergence of high-speed computerized trading.
The SEC is also reportedly looking into the practice of “sub-penny pricing,” where large numbers of orders are placed in increments as small as one-tenth of a cent and far away from the actual trading price of the stock.
According to the sources cited by the Journal, the SEC has identified about a half dozen firms to question about sub-penny pricing and the inquiry into the practice is expected to take months to complete. The firms identified are not necessarily being accused of any wrongdoing.
These issues are some of the concerns that have popped up as the once centralized stock market world has become dominated by high-speed computer systems preferred by hedge funds and loosely connected trading networks.
There are benefits of the transforming stock market include some lower costs for investors, and the higher volume of cancellation are a consequence of traders scouring the many exchanges for the best possible price.
Exchange executives have said that a portion of the cancellations are from a natural course of trading, but most of the canceled quotes are from traders pumping up a stock’s computerized order book with fake bids and offers.
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A report from the Wall Street Journal citing people familiar with the situation, the SEC is looking into what role if any the practice of quote stuffing played in the "flash crash" on May 6 when in a matter of minutes the Dow Jones industrial average fell 700 points.
Traders have attributed the phenomenon of quote stuffing has risen in frequency in recent years due to the emergence of high-speed computerized trading.
The SEC is also reportedly looking into the practice of “sub-penny pricing,” where large numbers of orders are placed in increments as small as one-tenth of a cent and far away from the actual trading price of the stock.
According to the sources cited by the Journal, the SEC has identified about a half dozen firms to question about sub-penny pricing and the inquiry into the practice is expected to take months to complete. The firms identified are not necessarily being accused of any wrongdoing.
These issues are some of the concerns that have popped up as the once centralized stock market world has become dominated by high-speed computer systems preferred by hedge funds and loosely connected trading networks.
There are benefits of the transforming stock market include some lower costs for investors, and the higher volume of cancellation are a consequence of traders scouring the many exchanges for the best possible price.
Exchange executives have said that a portion of the cancellations are from a natural course of trading, but most of the canceled quotes are from traders pumping up a stock’s computerized order book with fake bids and offers.
Get immediate access to market moving news and alerts with StreetInsider.com Premium - FREE TRIAL!
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