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U.S. Securities and Exchange Commission

Speech by SEC Chairman:
Opening Statement at the SEC Open Meeting — Large Trader Reporting System


Chairman Mary L. Schapiro

U.S. Securities and Exchange Commission

Washington, D.C.
April 14, 2010

Good Morning. This is an open meeting of the U.S. Securities and Exchange Commission on April 14, 2010.

Today, the Commission will consider proposals designed to strengthen our oversight of the markets and promote greater fairness and efficiency.

First, we will consider whether to propose a rule that would establish a large trader reporting system, which will allow the Commission to readily identify market participants engaged in substantial trading activity.

Later, we will consider whether to propose 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.

Today’s actions are part of our ongoing effort intended to promote fairness and efficiency in our markets. 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.

Evolving Markets

Today’s proposed rules are necessary to keep pace with our ever-changing securities markets – markets that have undergone dynamic transformation in recent years.

The fact is 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. 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.

While the Commission collects transaction data from registered broker-dealers through the Electronic Blue Sheets system, the EBS system is generally utilized in more narrowly-focused investigations involving trading in particular securities. It is not generally conducive to larger-scale market reconstructions and analyses involving numerous stocks during periods of peak trading volume.

Large Trader Reporting System

The Commission’s need to better monitor these entities is heightened by the fact that large traders, including high-frequency traders, appear to be playing an increasingly prominent role in the securities markets.

To enhance the Commission’s ability to identify large traders and collect information on their trading activity, the Commission will now consider whether to propose a new Rule under Section 13(h) of the Securities Exchange Act. The rule would allow the Commission to exercise its authority to establish a large trader reporting system.

Traders who engage in substantial levels of trading activity would be required to identify themselves to the SEC through a filing with the Commission. It is proposed that a “large trader” would generally be defined as a person, including a firm or individual, whose transactions in exchange-listed securities equal or exceed (i) two million shares or $20 million during any calendar day, or (ii) 20 million shares or $200 million during any calendar month.

By providing the Commission with prompt access to information about large traders and their trading activity, the proposed rule is intended to help the Commission reconstruct market activity, analyze trading data, and investigate potentially manipulative, abusive, or otherwise-illegal trading activity.

Before I turn this over to Robert Cook, Director of the Division of Trading and Markets, I would like to thank Robert, Jamie Brigagliano, David Shillman, Richard Holley, Chris Chow, and Gary Rubin from the Division of Trading and Markets for your work on the recommendations.

Thank you as well to David Becker, Meridith Mitchell, Lori Price, Deborah Flynn, and Janice Mitnick from the Office of the General Counsel; Henry Hu, Jennifer Marietta-Westburg, George Aragon, Charles Dale, and Adam Glass from the Division of Risk, Strategy, and Financial Innovation; John Polise from the Division of Enforcement; Mark Donohue and Bernard Denis from the Office of Compliance Inspections and Examinations; Douglas Scheidt and David Vaughan from the Division of Investment Management; and Elizabeth Jacobs and Gloria Dalton 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 proposed rule.

Now I'll turn to Robert Cook to hear more about the Division’s recommendation.


Modified: 04/14/2010