SEC may be creeping ahead of CFTC toward market transparency

11:33p ET Wednesday, April 7, 2010

Dear Friend of GATA and Gold (and Silver):

Having noticed that "high-frequency traders" account for more than 60 percent of the volume of trades on U.S. stock exchanges and that such trading may manipulate markets, the U.S. Securities and Exchange Commission, as the Bloomberg News story appended here reports, may try to identify the traders, the better to keep an eye on them. Of course when 60 percent of a market is being run not on the basis of any fundamental valuation but only on the basis of brief price movements engineered by traders to get a millisecond edge on other traders, there really isn't a market at all but just a giant manipulation.

The same holds true with the gold and silver futures markets, where similarly disproportionate positions -- concentrated short positions -- are held by perhaps two banks and very likely just one bank, a bank with the closest connections to the U.S. Treasury Department and Federal Reserve Board, a bank whose connections give it access to infinite money of the electronic and paper kind.

An entity with access to infinite money can control any market.

The SEC may be stumbling toward this realization. It says it wants to know the identities of the big perpetrators of market moves. Over in the futures markets, the U.S. Commodity Futures Trading Commission already knows, already gets that data but is forbidden by law from disclosing the identities of traders. Yet when traders get that dominant, there really isn't much of a market, and that may be an issue needing to be addressed as much as the issue pending before the CFTC, futures market position limits.

Nothing prevents the CFTC from asking Congress to change the law to allow identification of big traders for the sake of the transparency President Obama has said he wants to bring to the markets. Of course nothing also prevents the CFTC from asking Congress to change the law so that the connections between the Federal Reserve and the Treasury Department, on one hand, and the biggest player in the gold and silver markets also can be fully revealed. But if everything was revealed all at once the country might freeze up in shock.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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SEC May Require Identification Codes for High-Frequency Trades

By Jesse Westbrook
Bloomberg News
Wednesday, April 7, 2010

http://www.bloomberg.com/apps/news?pid=20601087&sid=a0ajJ0.P1_pU&pos=7

WASHINGTON -- The U.S. Securities and Exchange Commission may attach identification codes to high-frequency traders so the agency can better track transactions that account for more than 60 percent of American stock volume.

SEC commissioners will vote April 14 on a proposal to require firms that exceed a certain threshold to identify and report their transactions to regulators, the agency said in a statement today. Brokerages would have to maintain records of the trades, the SEC said.

Chairman Mary Schapiro announced her staff was working on the proposal in October, saying the agency wanted "better baseline information" on high-frequency traders. Lawmakers, including U.S. Sen. Ted Kaufman, have questioned whether the market participants who trade thousands of shares in milliseconds hurt returns for long-term investors.

"I applaud the SEC for moving forward with a proposed rule to require tagging of high-frequency trades," Kaufman, a Delaware Democrat, said in a statement. "This is the first step to ensuring the SEC can better understand high-frequency strategies and detect manipulative algorithms."

The SEC is examining high-frequency trading, dark pools, and the structure of U.S. markets to determine whether it should stiffen regulations. New rules may make certain trading practices less profitable for firms and hurt U.S. exchanges, where revenue partly depends on the number of transactions executed.

Any proposal would require a subsequent vote by SEC commissioners to become a binding rule.

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