SEC Proposes New Rule on Large Trades

Who’s doing what and will it help us or hurt?

Essentially, that’s what the Securities and Exchange Commission wants to find out with a proposed rule requiring more reporting of big trades. If passed after a 60-day public comment period, the rule would define large traders as individuals or firms conducting trades of securities listed on ordinary exchanges that equal or exceed 2 million shares or $20 million in a single day, or 20 million shares or $200 million a month.

The rule would therefore cover mutual fund companies as well as hedge funds, pension funds, investment banks and other big traders. The SEC wants a better look at how big trades affect the market.

In the past year or so, some regulators, lawmakers and other observers have worried that huge, computerized trades conducted at ultra-high speeds give professionals an unfair advantage over ordinary investors by driving prices up and down in ways that might defy normal supply and demand.

There also has been some concern about the effect of “dark pools,” secretive trading systems for professionals that could be influencing prices on the ordinary exchanges.

If passed, the rules might also provide new insight into mutual funds. Funds typically report their holdings each quarter, but only list the securities they own on the reporting date. Critics have charged that some funds engage in “window dressing,” buying the latest hot stocks, and dumping bad ones, just before the reporting deadline, to make managers look better.

With better access to big trades, the SEC might get a clearer look at how widespread this practice is.

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