Plan to slow 'Flash Boys' already has some holes

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Slowing down high-frequency trading

A test program to change the way small-company stocks are traded could slow high-frequency action, though some market participants worry that the initial steps are too tepid.

The Securities and Exchange Commission announced the proposal Tuesday in which 1,200 small-cap firms will be divided into three equal-sized groups with different standards governing each. (Read the whole report here.)

One group—the "control"—essentially would trade the same as before; the second would see stock prices quoted in 5-cent increments, as opposed to the penny increments currently used; and the third also would trade in 5-cent increments but also would follow a "trade-at" requirement in which trading centers couldn't match prices unless they display the best bid or offer.

Ostensibly, the program's goal is to "enhance market quality for smaller capitalization stocks for the benefit of investors and issuers," according to the SEC. More practically, the changes are aimed at thwarting high-frequency traders who have used the lightly traded small-caps to skim profits by getting lower prices on purchase and higher prices on sales than their slower competitors.

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