SEC Gives Another Edge to the Weak Players

By: Michelle Caruso-Cabrera

We’ve learned today that three trading firms could not handle the volume they faced the day of the flash crash.

The Wall Street Journal reports Citadel and Knight both couldn’t handle the flood of orders. This marks three firms which reduced liquidity, whether by choice or not, at a moment when market participants wanted it most. (The third is the NYSE which says they got so many orders they decided to slow down trading, and some stocks didn’t trade for roughly 90 seconds.)

The market should punish these firms and likely would, by telling these players "we will not be sending trades to you if you don’t improve your platforms enough to handle moments like these." They need to reestablish confidence among their customers.

Instead, the SEC decided to regulate to the lowest-common-denominator. By announcing that all trading platforms will have to slow down when one slows down, they have given a pass to companies whose infrastructure clearly isn’t up to par.

Read the rest here.