When competitors threaten turn to the government: NYSE turns to Congress and the SEC to stop Direct Edge

From the WSJ:

. . . . Direct Edge, a trading system that has commandeered 12% of U.S.-listed stock trading, a six-fold increase in just two years. The Big Board is leading an attack against Direct Edge, and has found a sympathetic ear in Congress and the Securities and Exchange Commission.

Direct Edge, of Jersey City, N.J., is at the heart of the world of high-frequency trading, in which computerized models dash in and out of stocks by the millisecond, hoping to capture fleeting distortions between the prices of securities.

What has gotten the NYSE so upset is Direct Edge's advocacy of "flash trading" -- a particular variety of high-frequency trading that briefly previews some orders to a few dozen market participants and trading platforms in hopes of finding a match.

New York Sen. Charles Schumer last month said use of such orders "creates a two-tiered system where a privileged group of insiders receives preferential treatment," and he urged the SEC to ban them. In response, SEC Chairman Mary Schapiro has vowed to curb any "inequity" in such orders as part of a review of high-speed trading practices and "dark pools" operated by Wall Street firms and other traders.

While some competitors say they won't do flash trades, Mr. O'Brien takes an unrepentant approach. To him, the orders allow his customers to access additional orders to buy and sell stocks, providing a "bridge" to off-exchange trading pools, including dark pools, that may give them better prices. Customers' use of such orders is voluntary, he adds. . . . .