The U.S. Securities and Exchange Commission Thursday unanimously proposed a rule amendment that would prohibit so-called flash trading.

Flash orders enable a person who has not publicly displayed a quote to see orders less than a second before the public is given an opportunity to trade with those orders, the SEC explains. Currently, these orders are permitted as an exception to the trading rules that exempts these orders from requirements that apply to other orders.

The SEC says it is now concerned that the exception may no longer be necessary or appropriate in today’s highly automated trading environment. It is concerned that investors who only have access to information displayed as public quotes may be harmed if market participants are able to flash orders and avoid the need to make the order publicly available.

“Flash orders may create a two-tiered market by allowing only selected participants to access information about the best available prices for listed securities,” said SEC chair Mary Schapiro, in a release. “These flash orders provide a momentary head-start in the trading arena that can produce inequities in the markets and create disincentives to display quotes.”

Due to its concern, the commission voted unanimously to propose the elimination of the flash order exception. If adopted, the proposed amendment would effectively prohibit all markets – including equity exchanges, options exchanges, and alternative trading systems – from displaying marketable flash orders.

Comments on the proposal are due in 60 days.

IE