Good morning.
This is an Open Meeting of the Securities and Exchange Commission on July 26, 2011.
Today, we will consider three items related to Large Trader Reporting, Asset-Backed Securities,
and Ratings References.
We begin with the new rule that would establish a large trader reporting regime to provide
the Commission with better insight into critical segments of market activity.
The rule has two primary components:
First, it would require large traders to register with the Commission through a new form, Form
13H.
Second, it would impose recordkeeping, reporting, and limited monitoring requirements on certain
registered broker-dealers through whom large traders execute their transactions.
The Commission initially proposed the large trader rule in April 2010.
And less than a month later, the importance of this proposal was highlighted when we experienced
the “flash crash” of May 6.
That day dramatically demonstrated the need to enhance the Commission’s ability to quickly
and accurately analyze market events.
The fact is we live in a time when trades can be transacted in milliseconds or faster.
Large market participants can trade electronically in substantial volumes, at high speed, and
in multiple venues.
It’s a time of rapid developments in trading technology and strategies.
It is for that reason that we launched a comprehensive review of U.S. market structure — a review
we initiated months before the flash crash.
The large trader rule is one of several measures that grow out of that review — a rule that
would enhance the Commission’s ability to obtain information about the most active market
participants.
This new rule, Rule 13h-1, would significantly bolster our ability to oversee the U.S. securities
markets by allowing the Commission to promptly and efficiently identify significant market
participants on a cross-market basis, collect data on their trading activity, reconstruct
market events, conduct investigations and, as appropriate, bring enforcement matters.
The collection of this information is particularly important given the increasingly prominent
role played by very active market participants including high-frequency traders.
In addition to this large trader rule, the Commission previously proposed establishing
a consolidated audit trail for equities and options — a system that would capture customer
and order event information for many securities across all markets.
I anticipate that a consolidated audit trail would take longer to implement than the rule
we are considering today, but it would collect and consolidate much more extensive order
and transaction information than that contemplated by the large trader rule.
In particular, the large trader regime is much more limited in terms of its scope and
objectives.
For instance, the technology requirements of this large trader regime should entail
much less change than the proposed consolidated audit trail.
Further, the large trader rule would leverage existing systems to address the Commission’s
compelling near-term need for access to more information about large traders and their
trading activities.
It also would begin to improve the Commission’s ability to analyze such information.
Today’s large trader rule would establish procedures for a large trader to self-identify
to the Commission, which will provide important information to the Commission even after a
consolidated audit trail is fully implemented.
The staff is working on recommendations for Commission consideration with respect to consolidated
audit trail, and I am hopeful that we will be able to move forward with that proposal
in the very near term.
I expect that a consolidated audit trail plan will build on and complement today’s large
trader rule, and avoid unnecessary duplication or undue burden on market participants.
I would like to thank the staff of the Division of Trading and Markets for their work on this
matter, specifically Robert Cook, Gregg Berman, Nathaniel Stankard, James Brigagliano, David
Shillman, Richard Holley, Christopher Chow, Gary Rubin, and Kathleen Gray.
I also would like to thank staff in the Office of the General Counsel, specifically Mark
Cahn, Meridith Mitchell, David Blass, Paula Jenson, and Deborah Flynn as well as staff
in the Division of Risk, Strategy, and Financial Innovation including Jennifer Marietta-Westburg,
Charles Dale, Adam Glass, and Matthew Kozora.
Thanks also to Thomas Sporkin and Mark Lineberry from the Division of Enforcement; Tom Kim,
David Orlic, Michele Anderson, and Ann Krauskopf from the Division of Corporation Finance;
John Polise from the Office of Compliance Inspections and Examinations; Douglas Scheidt
and Stephen Packs from the Division of Investment Management; and Kelly Riley 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 rule.
Now I'll turn the meeting over to Jamie Brigagliano, Deputy Director of the Division of Trading
and Markets, to hear more about the Division’s recommendation.