I, too, want to offer my thanks to our staff and, in particular, the individuals within the Office of Market Supervision in the Division of Trading and Markets who have worked hard to develop the proposal before us today. I also greatly appreciate the collaboration across the Divisions and Offices that has brought us this recommendation, and I know the staff is continuing that collaboration in developing approaches for a consolidated audit trail. I have been privileged to work closely with the staff on the concept of a consolidated audit trail from its early stages and look forward to considering the staff's recommendation on that initiative.
In the interim, I am happy to support your recommendation for a large trader reporting system today.
Well-regulated markets require that regulators have the tools and information they need to conduct surveillance as well as investigations of manipulative, abusive, or other illegal activity, and to better understand market participants. To do this effectively, regulators and self-regulators must have timely and accurate information. This is true for all trading information provided to the Commission; today, we are focusing on the identification of large traders and their activities.
More than 20 years ago, former Chairman David Ruder remarked,
The sheer magnitude of this trading, both absolute and in relation to total market volume and value, dramatically demonstrates the need for the Commission and the SROs to have timely access to large trader information.1
He went on to say that:
Large trader information is essential to the Commission's ability to promote market stability. When significant price movements occur, the Commission must be able to reconstruct quickly the trading activity of the largest market participants.2
While he was referring to block and portfolio trading and other institutional strategies, his words remain true, as the circumstances today still call for improvements to audit trail information. Especially given today's fast, electronic, and interconnected markets, and large traders becoming more prominent players in the markets, regulators continue to need access to a robust and effective consolidated order and transaction tracking system with the identification of large traders.
Although improvements have been made to the Electronic Blue Sheet System (EBS), which the Commission uses to obtain securities transaction information, as the proposing release points out, the system has been an inadequate tool for large-scale market reconstructions and analyses involving numerous stocks. For instance, the data through that system does not presently contain information regarding the beneficial owner behind a transaction and does not identify larger traders. There can also be long delays in collecting the data through that system. Thus, the Commission does not have a reliable mechanism to gather and track a complete source of information about larger traders.
The proposal before us today is a good and strong step toward providing the Commission with more data and insight for it to perform its duties more effectively. Specifically, it will provide the Commission with information about persons that effect large volumes of trading; significantly, they would include non-broker dealers and high frequency traders. This information should significantly improve the Commission's ability to conduct timely and accurate trading analysis for market reconstructions and complex enforcement inquiries or investigations, as well as inspections and examinations of large traders and their activities.
However, this proposed large trader system is not a cure-all to the agency's need for better audit trail information, but rather an additional mechanism that the Commission could use to monitor large trading activities in the market and the huge, market-moving customers behind it.
We need to have an even more complete picture of the markets, and I look forward to considering the staff's recommendation to develop a consolidated audit trail that would capture customer and order event information across markets. In my view, the consolidated audit trail, along with the proposed large trader reporting system, could greatly enhance the Commission's ability to perform its market monitoring responsibilities and to detect and investigate illegal activity in a timely fashion by providing a comprehensive record of each transaction in the markets. These enhancements are critical to the Commission's ability to surveil the marketplace.
Thanks once again to Robert and Jamie, and the rest of the staff for your excellent work on this proposing release.