U.S. securities trading could become more transparent and harder to manipulate if the U.S. government has its way. The Securities and Exchange Commission (SEC) voted 5-0 Wednesday to issue a proposal to establish a large trader reporting system, and separately proposed to put in place two investor protection measures in options markets that currently exist in stock markets.

SEC Chairman Mary Schapiro said the proposals are designed to strengthen the commission’s oversight of the markets while providing greater fairness and efficiency. Under the large trader reporting system, the SEC said it will be readily able to identify market participants engaged in substantial trading activity. The proposed rule would have large traders — a person, including a firm or individual, whose transactions in exchange-listed securities equal or exceed two million shares or $20 million during any calendar day, or 20 million shares or $200 million during any calendar month — report next-day transaction data to the commission. Traders who meet the criteria would be required to identify themselves to the SEC through a filing with the commission.

Schapiro said Wednesday’s proposed rules are necessary to keep pace with “our ever-changing securities markets,” which have “undergone dynamic transformation” in recent years. She added that rapid technological advances have had an impact on trading strategies and on the ways in which some broker-dealers carry out their trades.

“Today, trades are transacted in milliseconds and dispersed among many trading centers,” Schapiro said. “This allows large market participants to employ sophisticated trading methods to trade electronically in substantial volumes with blazing speed in multiple venues. To better oversee the U.S. securities markets, the commission must be able to readily identify large traders operating in the U.S. securities markets, and obtain basic identifying information on each large trader, its accounts, and its affiliates. In addition, to support its regulatory and enforcement activities, the commission should have a mechanism to efficiently track and promptly obtain trading records concerning large traders.”

By providing the commission with prompt access to information about large traders and their trading activity, Schapiro said the proposed rule would help the commission reconstruct market activity, analyze trading data and investigate “potentially manipulative, abusive or otherwise-illegal trading activity.”

SEC Commissioner Luis A. Aguilar said Wednesday it is past time to implement large trader reporting requirements. Noting that Congress “expressly authorized the commission to institute a large trader reporting system almost 20 years ago following the market breaks of October 1987 and 1989,” Aguilar said “the time has come for us to exercise the authority we’ve been given,” adding that a large trader reporting system “represents a significant step forward in building the comprehensive system of market oversight that investors have a right to expect, and it will clearly further the commission’s mission to assure fair, orderly and efficient markets.”

As for the options markets, the SEC’s other proposed rules Wednesday address the capping of options trading fees. The SEC proposed a rule to prohibit an exchange from imposing unfairly discriminatory terms that inhibit efficient access to quotations in listed options and a rule to limit access fees in the options markets.

“It is important that investors have the ability, free of unfair discrimination, to access the best prices available, regardless of the exchange that is posting the quotation,” Schapiro said. “In addition, when investors seek to buy or sell an option that is listed on an exchange, they need to be able to better understand the cost of executing that transaction.”

She said that under the current system there are many different fees across options exchanges, across different categories of options participants, and across different product types, so it is difficult to estimate the total — or “all-in” — cost of executing against a quotation. Wednesday’s proposal is designed to address the issues by extending to listed options certain features of Rule 610 of Regulation National Market System, which currently apply only to transactions involving exchange-listed stocks.

In addition to expanding the Rule 610 boundaries to squash discrimination in the options markets, the SEC also is proposing to establish a limit on the fees that an exchange can impose to execute an order. The proposed limit would be 30 cents/contract — a limit consistent with the maximum fee limit currently in place for exchange-listed stocks under Rule 610.

“Today’s actions are part of our ongoing effort intended to promote fairness and efficiency in our markets,” Schapiro said. “The commission already has proposed a series of other rules designed to increase fairness and efficiency, including a proposal to ban marketable flash orders, a proposal to bring greater transparency to dark pools of liquidity and a proposal to prohibit unfiltered access to markets.”

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