June 5, 2010
Based on the principle that a regulator needs specific and timely data to discharge its responsibilites effectively, the SEC should be highly commended for starting this initiative.
The SEC also should examine the correlation of rising volatility and manipulatively deprived liquidity. As large brokers or hedge funds can temporarily withhold the buy or sell orders in an adverse market, they can create an short-term order imbalance to trigger a momentum surge. A momentum surge can trigger stop losses, and hence create rising volatility. As volatility increases, more players withdraw from the market. Therefore, liquidity is also withdrawn from the market.
A consolidated tape that tracks the time of an order entry and order execution should help to prevent this kind of market manipulation.