Good morning. This is an Open Meeting of the Securities and Exchange Commission on July 26, 2011.
Today, we will consider three items related to Large Trader Reporting, Asset-Backed Securities, and Ratings References.
We begin with the new rule that would establish a large trader reporting regime to provide the Commission with better insight into critical segments of market activity.
The rule has two primary components:
The Commission initially proposed the large trader rule in April 2010. And less than a month later, the importance of this proposal was highlighted when we experienced the "flash crash" of May 6.
That day dramatically demonstrated the need to enhance the Commission´s ability to quickly and accurately analyze market events.
The fact is we live in a time when trades can be transacted in milliseconds or faster. Large market participants can trade electronically in substantial volumes, at high speed, and in multiple venues. It´s a time of rapid developments in trading technology and strategies.
It is for that reason that we launched a comprehensive review of U.S. market structure — a review we initiated months before the flash crash.
The large trader rule is one of several measures that grow out of that review — a rule that would enhance the Commission´s ability to obtain information about the most active market participants.
This new rule, Rule 13h-1, would significantly bolster our ability to oversee the U.S. securities markets by allowing the Commission to promptly and efficiently identify significant market participants on a cross-market basis, collect data on their trading activity, reconstruct market events, conduct investigations and, as appropriate, bring enforcement matters. The collection of this information is particularly important given the increasingly prominent role played by very active market participants including high-frequency traders.
In addition to this large trader rule, the Commission previously proposed establishing a consolidated audit trail for equities and options — a system that would capture customer and order event information for many securities across all markets. I anticipate that a consolidated audit trail would take longer to implement than the rule we are considering today, but it would collect and consolidate much more extensive order and transaction information than that contemplated by the large trader rule.
In particular, the large trader regime is much more limited in terms of its scope and objectives. For instance, the technology requirements of this large trader regime should entail much less change than the proposed consolidated audit trail. Further, the large trader rule would leverage existing systems to address the Commission´s compelling near-term need for access to more information about large traders and their trading activities. It also would begin to improve the Commission´s ability to analyze such information.
Today´s large trader rule would establish procedures for a large trader to self-identify to the Commission, which will provide important information to the Commission even after a consolidated audit trail is fully implemented.
The staff is working on recommendations for Commission consideration with respect to consolidated audit trail, and I am hopeful that we will be able to move forward with that proposal in the very near term. I expect that a consolidated audit trail plan will build on and complement today´s large trader rule, and avoid unnecessary duplication or undue burden on market participants.
I would like to thank the staff of the Division of Trading and Markets for their work on this matter, specifically Robert Cook, Gregg Berman, Nathaniel Stankard, James Brigagliano, David Shillman, Richard Holley, Christopher Chow, Gary Rubin, and Kathleen Gray.
I also would like to thank staff in the Office of the General Counsel, specifically Mark Cahn, Meridith Mitchell, David Blass, Paula Jenson, and Deborah Flynn as well as staff in the Division of Risk, Strategy, and Financial Innovation including Jennifer Marietta-Westburg, Charles Dale, Adam Glass, and Matthew Kozora. Thanks also to Thomas Sporkin and Mark Lineberry from the Division of Enforcement; Tom Kim, David Orlic, Michele Anderson, and Ann Krauskopf from the Division of Corporation Finance; John Polise from the Office of Compliance Inspections and Examinations; Douglas Scheidt and Stephen Packs from the Division of Investment Management; and Kelly Riley from the Office of International Affairs for their contributions and collaborative efforts.
Finally, I would like to thank the other Commissioners and all of our counsels for their work and comments on the rule.
Now I'll turn the meeting over to Jamie Brigagliano, Deputy Director of the Division of Trading and Markets, to hear more about the Division´s recommendation.