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Senator to SEC: Hurry up audit trail to track trades

By Sarah N. Lynch

WASHINGTON (Reuters) - Federal regulators need to hurry and complete their work to create an audit trail to track financial trades and police markets, the chairman of a U.S. Senate Banking Committee panel said on Wednesday.

The U.S. Securities and Exchange Commission proposed the database in 2012, in what was a response to the May 2010 "flash crash."

Now, nearly three years later, the project is still far from complete.

"We have seen little progress," said Virginia Democratic Senator Mark Warner, whose panel has jurisdiction over the regulator.

"Having this in place will help regulators decipher what is happening in the market. So we need to implement this ASAP, and I hope the SEC is listening."

Many of the delays stem from the fact that the SEC left it up to the Financial Industry Regulatory Authority and the exchanges to sort through the details of who will build the audit trail and how it will operate.

They have twice asked the SEC to grant them more time to devise their plan, which is now due by the end of September.

The consolidated audit trail will serve as a central database to collect and store every single order, cancellation and trade execution for all equities and options.

Warner, who became the head of the Senate Banking securities subcommittee earlier this year, made his comments as part of a broader hearing exploring the role of high-speed trading and its impact particularly on smaller-sized company stocks.

It was the second such hearing this week targeting high-speed trading and equity market structure issues.

On Tuesday, a Senate investigative panel also held a hearing that delved into high-speed trading, and whether brokerages including TD Ameritrade are routing some customer orders to exchanges that pay the highest rebates.

The SEC realized it needed a consolidated audit trail after it was faced with the painstaking work of piecing together what happened in the 2010 "flash crash."

The event wiped out $1 trillion of shareholder equity in a matter of minutes after the Dow Jones Industrial Average plunged sharply before rebounding.

Investigating the crash was a major task because the equity markets are so fragmented among exchanges and trading venues.

Wednesday's hearing featured three different academic and industry expert witnesses who expressed a variety of views on the role that high-speed trading plays in the markets.

The Senate panel drew no conclusions on how it might proceed or whether it will seek to draft legislation on the topic.

However, most experts and lawmakers did agree that the SEC should also separately press ahead with a study testing whether allowing smaller company stocks to trade in wider increments helps attract more liquidity.

SEC Chair Mary Jo White has previously said her staff is currently working to develop this so-called "tick size" pilot.

(Reporting by Sarah N. Lynch; editing by Andrew Hay)

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