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SEC moots a ban of flash trades

THE US Securities and Exchange Commission (SEC) is to launch a crackdown on so-called &ldquo;flash&rdquo; trades, extremely fast transactions made on electronic trading systems, due to concerns that the practice disadvantages some investors.<br /><br />SEC chairman Mary Schapiro said yesterday that she had told staff to find a way to &ldquo;eliminate the inequity that results from flash orders&rdquo;.<br /><br />Flash orders are particularly controversial because they allow some traders to look at share order flows before the rest of the market, albeit by a fraction of a second.<br /><br />The SEC&rsquo;s probe is part of a broader probe into high-frequency trading and &ldquo;dark pools&rdquo;, trading arenas in which large tranches of shares can be traded anonymously by money managers. Schapiro&rsquo;s comments came after Senate Banking Committee member Charles Schumer, a Democrat, suggested that Schapiro had promised that the practice would be banned.<br /><br />Nasdaq OMX allows flash trading but rivals, such as NYSE Euronext, whose share price rose four per cent after Schapiro&rsquo;s statement, do not.<br /><br />Supporters of flash trading say that the practice brings liquidity to the markets and lower prices for investors. But critics, such as the New York Stock Exchange, say they undermine fair markets at the expense of traders without access to high-speed trading software.