) -- The

Securities and Exchange Commission

is considering a number of major changes to the equity markets -- including regulation of high frequency trading firms -- in response to the May 6 "Flash Crash," said Mary Schapiro, SEC chairman before a luncheon meeting of the Securities Traders Association in Washington D.C. on Wednesday.

Possible changes include new regulations around high frequency firms, expanding use of circuit breakers and reigning in what Schapiro termed "out of control" electronic trading programs, called algorithms.

First, the SEC is examining the role of high frequency traders and considering new regulations to monitor and control their business. Schapiro said that the firms are "subject to very little in the way of obligations" to promote market stability and could be the target of further rules.

"We will consider carefully whether these firms should be subject to an appropriate regulatory structure governing key aspects of their market behavior, including both their quoting and trading strategies," Schapiro said.

The SEC is also considering expanding market circuit breakers that halt trading; including creating a "limit-up/limit-down" system where stock orders would have to be executed within a range tied to the national best bid and offer. If the trade fell outside the parameters then trading could be paused, Schapiro explained.

Also being considered are curbs on algorithmic trading programs that execute electronic orders automatically. Schapiro explained that market watchdogs need to decide whether algorithmic trading programs "are subject to appropriate rules and controls."

"An out-of-control algorithm not only can cause serious losses to the firm that uses it, it can also cause severe trading disruptions that harm market stability and shake investor confidence," Schapiro said in the statement.

Finally, the SEC will review the role of market "fragmentation" and the role of dark pools of liquidity that fall outside the traditional market structure.

"It would foolish to ignore the tremendous benefits the modern equities markets bring to participants," Schapiro said. "But it would be equally wrong to forget that markets are not always perfect, to ignore the issues raised by high frequency trading, opacity and fragmentation, or to assume that the market structure and the rules of the road can't be adjusted and improved."


Written by Christopher Westfall in New York.