SEC proposes real-time tracking system for all equity trades

Government securities regulators proposed on Wednesday improving market surveillance by tracking stock orders across all U.S. equity markets in real time.

The measure, under development at the Securities and Exchange Commission for months, would probably have helped the agency piece together the lightning-fast series of events that led to a sudden, steep crash in stock prices on May 6.

Hindered by their inability to easily see the entire marketplace, the SEC and other regulators are still analyzing the market swoon that saw the Dow Jones industrial average drop some 700 points in minutes before recovering.

SEC Chairman Mary Schapiro said analyzing the events of May 6 has been challenging because no standardized, automated system exists to collect data across the various trading venues.

The consolidated audit trail, proposed unanimously by the five SEC commissioners, “would allow us to rapidly reconstruct trading activity and to quickly analyze both suspicious trading behavior and unusual market events,” Schapiro told a public meeting of the SEC.

Market surveillance is currently shared by in-house teams at trading venues such as the New York Stock Exchange and by the Financial Industry Regulatory Authority (FINRA), an industry-backed broker-dealer watchdog.

Under the proposal, trade information for every stock and listed option would have to be reported to a central repository in real time. That repository would be owned and operated by the major U.S. exchanges and FINRA, which would consolidate and retain all the data.

For nearly three weeks, regulators have been analyzing how more than 19 billion shares of stock changed hands on May 6. They still have been unable to pinpoint the cause of the free fall.