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Nasdaq, Bats to shut down flash order system
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13:10, August 07, 2009

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Nasdaq OMX Group Inc., one of the largest U.S. stock exchange, and Bats Global Markets said on Thursday that they will stop allowing brokerages to make so-called flash orders, which gave some investors an unfair advantage.

  Nasdaq will shut down the system on Sept. 1, while Bats will also quit the practice on the same day, according to reports.

As a trading technique, flash orders give high-frequency traders using lightning-fast computers an unfair advantage.

When buy or sell orders are submitted to marketplaces like Nasdaq, they are sometimes flashed to a collection of high-frequency traders for just 30 milliseconds, 0.03 seconds, before they are routed to everyone else, said New York Times in a recent report.

In that half-second, fast-moving computer software can gain valuable insights regarding growing or declining demand in certain stocks, and can trade ahead of other market participants, pushing prices up or down.

In late July, Senator Charles E. Schumer, a New York Democrat, asked the Securities and Exchange Commission to prohibit the technique that enables some large banks and hedge funds to peek at investors' stock orders before they are sent to the broader marketplace.

Schumer said on Tuesday that Securities and Exchange Commission Chairman Mary Schapiro will seek to ban the technique.

The SEC's move is a sign that regulators are moving to stricter oversight of a much larger business for exchanges, so-called high-frequency trading, in which brokerages using advanced computers execute thousands of transactions in a second. Those strategies may account for 70 percent of share volume in the United States.


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