Program Trade Reporting Talks Launched By SEC

The Securities and Exchange Commission called a meeting in Washington D.C. Sept. 7 to get vendor input on the issue of intra-day program trade reporting.

The meeting, attended by representatives of major quote vendors and price reporting authorities, followed similar pulse-taking sessions with groups of broker/dealer and exchange officials.

Someone at the SEC believes that keeping the public regularly informed of the degree of program trading activity will help restore retail investor confidence. The more information, the better, seems to be the theme.

While some observers believe intra-day program trade reporting may be counterproductive, others say such information could be useful to retail brokers seeking to encourage reluctant investors.

Swimmers won't be encouraged by regular shark alerts. But those determined to test the waters will certainly want to know when and where the sharks are feeding.

Not that program trade reporting would lack meaning for professional traders; once available, program trade statistics will doubtless contribute to still more complex software-driven strategies.

The reporting mechanism discussed during the meetings would call for broker/dealers to tag their orders, either upon entry or retroactively. The Securities Industry Automation Corp., through the Consolidated Tape Authority, would be responsible for collecting, processing and transmitting the data to vendors.

The SEC would like to inform investors on a timely basis -- say every half-hour or so -- of the volume of program trading in any particular stock, index, or market.

Perhaps the biggest obstacle to implementation of such a plan is the definition of program trading. SEC officials concede there is no such consensus, but suggest that some of the necessary or reasonable characteristics might include: elapsed time between execution of the various legs of the program, a minimum number of shares, stocks or dollars, and a relationship to an index.

Unfortunately, one of the key characteristics determining the nature of a trade is its assigned role in a trading strategy. How else can one distinguish between a hedge taken in connection with a customer order and one leg of a stock index futures arbitrage?

SEC officials say broker-dealers also expressed concerns related to the timeliness and detail of the proposed reporting. Broker-dealers don't want trading strategies broadcast while they're still underway. Nor do they want program activity attributed to individual firms.