Regulators are moving to lift a veil of secrecy over a key constituency on Wall Street a year after the flash crash, but how much disclosure should be required of high-frequency traders remains an open question.

One proposal to boost market transparency, rooted in the Black Monday crash of 1987 when the Dow plunged more than 22 percent in the largest, single-day drop in U.S. history, is pending and would be a key tool for regulators.

But the creation of a large trader reporting system still has not passed a year after the idea got preliminary, unanimous approval by the Securities and Exchange Commission, which was supposed to vote again after 60 days and public comment.

A precipitous drop briefly wiped out almost $1 trillion in stock value on May 6, 2010, an unprecedented fall that was exacerbated by high-frequency traders unloading their inventory of securities at the depth of the plunge.

While those tactics did not spark the flash crash, investors and academics have warned a similar crash may occur.

While comments have been supportive, the proposal is likely opposed by many high-frequency traders who fear workers at the SEC, despite confidentiality agreements, could reveal their trading strategies -- the lifeblood of their operations.

These strategies are at the center of a new order in markets in which anonymity is king and abusive activity can fester for a long time. That's unsettling for regulators who must monitor systemic risk, such as the unprecedented plunge last year on May 6.

The threat is that somebody who has a proprietary system might want to hide from everybody what he's doing, and it's not appropriate to hide it from the government, said Larry Harris, a former SEC chief economist. Harris is now a Marshall School of Business finance professor at the University of Southern California in Los Angeles.

Fears the market is flawed and that the fast traders thrive on improper activities remains a concern among institutional investors, perhaps their leading critics.

The proposed rule would tag large traders with unique IDs, a move that would greatly facilitate the audit trail and give the SEC access to information on their trades.

In the fragmented marketplace that came about a decade ago with deregulation, the visibility of market activity has deteriorated, said Jim McCaughan, chief executive of Principal Global Investors LLC, the asset management arm of Principal Financial Group of Des Moines, Iowa.

Access to information is no longer equal, said McCaughan, noting that high-frequency traders are gaining access to the order book that small, private investors are not privy to.

We do need to find ways to level up the playing field in terms of information flows, he said. That's the key problem. That's what I'm fundamentally still not comfortable with.

CODE OF SILENCE PRIDE OF WALL STREET

A decade in the making, the flash crash marked the dawn of a high-frequency world that regulators and many institutional investors were slow to recognize. A technological shift has taken place, akin to the move to digital from analog, and many in the market are still scrambling to comprehend the change.

Regulators have long expressed a need to identify key market participants so they can analyze their trading activity as part of the SEC's mission to protect investors and to maintain fair, orderly and efficient markets.

Although the new environment requires regulators to dissect trading as it unfolds, the SEC and the Commodity Futures Trading Commission needed almost five months to gather enough data to issue a report on what provoked the flash crash.

Minor glitches that spark price spikes and busted trades occur frequently, while there are those who believe a liquidity episode similar to last May will provoke another crash.

But the SEC's plans have dragged for more than two decades even after Congress authorized a so-called large trader rule and President H. W. Bush signed into law the Market Reform Act of 1990 almost three years to the day after Black Monday.

SEC Chairman Mary Schapiro said on Wednesday that she expected to move forward soon on the large trader rule and the consolidated audit trail, another key proposal.

My hope is in the next few months we will have the breathing room to go ahead and finalize those proposals as well, Schapiro told reporters in response to questions about what the commission has accomplished since the flash crash.

Schapiro also said questions remain about algorithmic trading, the controls needed to monitor it and the impact of high-frequency trading on liquidity in stressed markets.

The long delay is understandable considering financial markets work on the premise that if a strategy is advantageous, that information should be kept closely held.

Whoever you tell, the more people know it, the more likely it will escape even if those people are bound by confidentiality agreements, Harris said.

The key to keeping a secret is not to tell anybody.

(Additional reporting by Sarah N. Lynch in Washington and Jonathan Spicer in New York)