SIFMA opposes "trade-at" rule to prevent market crashes
A securities industry trade group on Wednesday voiced its opposition to the "trade at" rule proposed to prevent a flash crash like the one experienced by stock markets last May. The Securities Industry and Financial Markets Association, or SIFMA as it's commonly called, said it "strongly opposes the concept" in a comment letter sent to the Securities and Exchange Commission. An advisory committee to the SEC and the Commodity Futures Trading Commission recommended a number of changes to avoid a future flash crash, but SIFMA said its recommendation for a "trade-at" rule isn't warranted. The flash crash sent the markets diving in a matter of minutes on May 6, 2010, with the Dow Jones industrial average losing some 700 points before quickly rebounding. Regulators are still trying to figure out what exactly happened and seeking ways to lessen the chances that it will happen again. The recommendations that all trades conducted on "dark pools" or otherwise "off-exchange" improve on the existing market price, is referred to as a trade-at rule. Proponents argue that being able to hide certain aspects of investor positions are a common part of trading strategies. "SIFMA strongly opposes the concept of a trade-at rule as it would impact the current operation of the markets in a dramatic and adverse way. In particular, a trade-at rule would adversely affect investors and stifle competition and innovation, while imposing significant implementation costs on the markets," SIFMA said in its letter to the SEC. "A trade-at rule would have significant adverse consequences for investors, and retail investors in particular. Retail investors are well-served by the ability of their broker-dealers to determine the best manner in which to execute their orders," the letter said. "Internalization practices permit broker-dealers to offer immediate executions, size and price improvement, lower market impact and very low commissions. These practices would be negatively impacted by the proposed trade-at rule." Broker-dealers executing orders internally may provide a customer with faster, guaranteed executions along with opportunities for price improvement. But SIFMA claims a trade-at rule might slow the execution of the customer’s order and potentially cause the customer to miss the market and lose the opportunity for price improvement. Write to Kerry Curry. Follow her on Twitter @communicatorKLC.