While the "flash crash" may have kept SEC chair Mary Schapiro away from the ICI GMM a year ago, yesterday's commodities plunge did no such thing. Schapiro appeared on-schedule this morning as the after-breakfast speaker in front of a filled-room of mutual fund industry top executives. In her remarks she singled out high frequency traders and dark markets as items on the SEC "scrutiny" list.

(See the full text of Schapiro's planned remarks here.)

Schapiro used the platform to go through the lessons the SEC learned from last year's flash crash and how the SEC is proposing to prevent a repeat. Though the first of the proposals were made last May with the circuit breaker pilot program, they are still coming with the most recent proposal [pdf]] (made in April), intended as a permanent way to reduce market volatility.

Schapiro explained that the flash crash stemmed from a "technical market structure problem, not a change in fundamental value." She added that many market participants told the SEC during its review of last trades from May 6, 2010 that they would have stepped in to make buys but that they could not keep up with the sell orders. She also said that many were fearful that some major event had occurred of which they were not aware. Meanwhile, some high frequency traders made great gains from the activity.

Schapiro told fundsters that those facts mean that regulators should thoroughly examine the role of high frequency traders.

The fragmented nature of today's markets, including the growing role played by dark venues, also helped create the flash crash. The dark markets further disrupted trading as they shunted trades they could not complete to the public exchanges. Those events call into question the role dark markets play in trading and how much value they add in terms of price discovery, she said. 

Stay ahead of the news ... Sign up for our email alerts now
CLICK HERE