| NEW YORK, June 30
NEW YORK, June 30 Last month's "flash crash" was a
wake-up call for regulators to strengthen rules for those firms
that provide liquidity to the marketplace, Getco LLC, a big
U.S.-based market maker and high-frequency trading firm, said in a
commentary published on Wednesday.
Getco is perhaps the most familiar name in the relatively
quiet world of high-frequency trading -- the lightning-quick
trading practice that has come under increased scrutiny over
the last year and has been blamed in part for worsening the May
6 market plunge.
These traders use computer algorithms to make markets and
take advantage of tiny imbalances, and are involved in an
estimated 60 percent of U.S. stock trading volume, providing
much liquidity. While some of the big firms stopped trading
during the flash crash, Getco has said it continued to trade.
The Chicago-based company's co-founders, in a column on the
Financial Times website, said regulators "must address the role
market makers should play in equity markets," adding that
obligations for these firms need to be balanced with benefits to
reflect the risks they take.
Market makers typically use their own capital to take both
sides of the market, essentially buying and selling without
taking long-term bets so that investors can easily trade.
Getco this year became an official market maker for some
NYSE-listed stocks. "As one of the largest market makers, we
support stronger rules for liquidity provision," the company's
Stephen Schuler and Daniel Tierney said in the column.
"To qualify as a market maker, companies should meet four
criteria: provide useful liquidity; provide relevant prices;
risk their own capital; and meet higher capital requirements
based on their quoting obligations," they added.
The U.S. Securities and Exchange Commission raised the
prospect of trading obligations in a January paper outlining
its concerns about market structure and high-frequency
Shortly after the flash crash, U.S. exchange executives
told the SEC these firms help keep markets functioning. A
Nasdaq OMX Group Inc (NDAQ.O) executive suggested at the time
regulators should consider "creating better incentives to
provide liquidity during periods of market stress."
The crash drove the Dow Jones industrial average down some
700 points in minutes, rattling investors globally and sparking
a handful of new rule proposals but few clear answers as to its
(Reporting by Jonathan Spicer)