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Market Volatility and Enforcement Considerations Lead SEC to Propose New Trading Measures

May 18, 2010

By William F. Sullivan and Adam D. Schneir

Even before the trading flare-up earlier this month, it was clear that rapid technological advances have fundamentally changed the U.S. securities markets including their structure, trading strategies utilized, products traded, and the types of participants. As a result of these significant changes, institutional and other professional market participants now have the ability to use highly sophisticated trading methods to trade electronically huge volumes of securities very quickly. High frequency trading has, in fact, become increasingly prominent some estimates have even indicated that high frequency traders currently account for over 50% of total market volume. Such trading activities, coupled with recent market volatility and heightened enforcement scrutiny, led to the Securities and Exchange Commissions (the SEC) recent proposal to establish the Large Trader Reporting System (the LTRS) under Section 13(h) of the Securities Exchange Act of 1934. In addition to the LTRS, and in an effort to further increase market transparency, the SEC has also recently proposed other trading-related measures focusing on areas such as flash orders and dark pools.