NEW YORK, July 30 (Reuters) - Exchange operator BATS Global Markets plans to put a rule in place that would allow it to crack down more promptly on manipulative trading behavior on its exchanges.
BATS said on Thursday its “Client Suspension Rule,” which requires approval from the U.S. Securities and Exchange Commission, would allow the company to halt manipulative conduct within weeks of detection, rather than the years it takes under the current regulatory process.
Once trading manipulation comes to light, the new rule would allow BATS to contact the broker dealer facilitating the trades, and insist that it fires the client identified as the source of the manipulation. The current regulatory process and investigations would then continue.
The rule would be especially helpful to prevent traders operating overseas via broker dealers from manipulating the U.S. markets, BATS said.
“It immediately eliminates the harm to U.S. markets,” BATS Chief Executive Officer Chris Concannon said in an interview.
BATS had discussed the rule with other exchanges and regulators and they were supportive of it, he said.
The No. 2 U.S. exchange operator said the new rule was aimed at practices known as “spoofing” and “layering,” which involves a trader placing large orders and then modifying or canceling the orders as the price of the security moves so that the orders never become actual trades. After creating the false impression of massive interest, the trader can then buy or sell the security at more advantageous prices.
In April, the U.S. Justice Department said it had criminally charged a day trader in London with fraud and manipulation relating to alleged spoofing and layering in 2010 on CME Group Inc’s exchange that may have contributed to the May 2010 “flash crash.”
Concannon said the new rule had been in the works prior to the London day trader being charged. (Editing by Bernadette Baum)