The SEC's spent 15 years remaking the stock market into 11 competing exchanges and hundreds of computer-driven traders;  in the process, it has virtually eliminated the traditional market makers who bought and sold stocks when no one else would, Bloomberg's Nina Mehta reports. 

Which prompted Chairman Mary Schapiro to call for an SEC investigation into whether the loss of “old specialist obligations” has hurt investors after measures such as trading stocks in penny increments cut the number of those firms on the NYSE to 5 from 25 the past 10 years.  Automated traders, subject to few rules for when they must buy and sell, now dominate the markets.  It's no wonder the SEC thinks the revolution may have gone too far, and the markets are most vulnerable when selling starts to snowball.

    Keeping Biggest Auto-Traders From Abandoning the Market.    The debate over how to keep U.S. stock prices from plunging in times of stress gained urgency after the Flash Crash of May 6.  Lawmakers have asked if the high-frequency firms destabilized trading by stepping away when they were needed most.

“The players in our markets have changed but our regulations have not kept pace.  High-frequency traders pulled out during the freefall, leaving a dearth of liquidity and exacerbating market volatility.” - -  Senator Charles Schumer.

The SEC is in the “early stages of thinking about whether obligations on market makers akin to what used to exist might make sense,” Schapiro recently told reporters.  She added during a 9/7 speech that the issue is “whether the firms that effectively act as market makers during normal times should have any obligation to support the market in reasonable ways in tough times.”

For the complete story, click onto:  [ Bloomberg, 9/14 ]