The Securities and Exchange Commission (SEC) has proposed a new rule that would require stock exchanges in the US to create a consolidated audit trail of trading information.
The proposed rule comes in the wake of the so-called flash crash on 6 May, when US markets crashed – major indices fell by almost 10% – and rebounded in space of thirty minutes. The cause of the crash has not yet been fully identified by regulators.
The regulator said the creation of a consolidated audit trail system would help it keep pace with new technology and trading patterns. The proposal, which will initially cover all National Market System stocks and listed options, requires exchanges and their members to send quote and order information to a newly-created central repository as close to real-time as possible.
At present, there is no single database on order and execution data for US securities, which means regulatory bodies are required to consolidate a vast amount of data from disparate market participants to reconstruct an unusual market event or monitor suspicious trading activity.
“If adopted, this consolidated audit trail would, for the first time ever, allow the SEC and other market regulators to track trade data across multiple markets, products and participants in real time,” said SEC chairman Mary L. Schapiro. “It would allow us to rapidly reconstruct trading activity and quickly analyse both suspicious trading behavior and unusual market events.”
The SEC established a task force in 2009 to improve trade monitoring. After publication of the proposal in the federal register, the SEC will seek public comment for 60 days. The rule closely follows another proposal by the SEC to create a larger trader reporting system, which would assign a unique identification number to firms executing certain volumes in US equities, allowing the regulator to analyse their trading activity.