The U.S. Securities and Exchange Commission proposed banning flash orders after lawmakers said the practice may give hedge funds an advantage over other investors. SEC commissioners unanimously voted today to seek public comment on a rule barring exchanges and trading platforms from giving clients access to information about stock orders a fraction of a second before the market.
“Investors that have access only to information displayed as public quotes may be harmed if market participants are able to flash orders and avoid the need to make the orders publicly available,” Chairman Mary Schapiro said.
Democratic Senators Charles Schumer and Ted Kaufman urged the commission to halt the practice, arguing frequent traders use technology to profit from access to information not available to retail investors. Direct Edge Holdings LLC has relied on flash orders to take market share from NYSE Euronext.
Nasdaq OMX Group Inc. and Bats Global Markets voluntarily dropped flash orders last month after the practice drew scrutiny from Congress and the SEC.
The SEC’s proposed ban requires a second vote at a later public meeting to become binding.