Securities and Exchange Commission Chairwoman Mary Schapiro delivered the opening statement and has been participating in a roundtable on the relationship between technology and trading and a spate of highly publicized breakdowns in the securities markets, including the Flash Crash, failures in initial public offerings of BATS and Facebook and a major execution failure that almost took down the firm of Knight Capital.
Schapiro listed a number of measures the SEC has taken, including single-stock circuit breakers, bans on stub quotes and naked access, pre-trade rules and requiring high-frequency trading (HFT) traders to identify themselves, but many observers have questioned whether these measures make any real difference, as industry trade associations resist regulation.
Schapiro asserted that “after the Flash Crash, the Commission was ‘well-positioned’ to respond in order to reduce the likelihood of another such event.”
As she spoke, I was thinking that even if this is true, which is doubtful, it doesn’t mean that the agency acted effectively. For example, another action Schapiro touted was a rule that the SEC has been working on since 1980 to establish a “consolidated audit trail” to enable effective market surveillance.
However, even a cursory examination of this product will reveal that all it does is direct the industry to develop a consensus as to how to proceed. On CNBC, Fast Money host Scott Wapner waved a copy of Schapiro’s statement and howled in disbelief.
Simultaneous with the last portion of the first panel of the roundtable, CNBC had some experts in its studio to talk about some of the issues. Billionaire investor Mark Cuban assailed HFT as serving no purpose, and even one of the roundtable participants denied that it is an important source of revenue for his firm.
Hedge fund manager Leon Cooperman called for the reinstatement of the “uptick” rule in the hope that it would slow down the pace of trading, and he lamented that market makers are having a difficult time establishing a profitable business model.
All of this is taking place against the backdrop of the virtual paralysis of both the SEC and its cousin, the Commodity Futures Trading Commission (CFTC). A former colleague of Schapiro confirmed for me last week that CFTC Chairman Gary Gensler lacks the votes to convene the agency to consider any of the long list of regulations that Congress has mandated in order to implement the Dodd-Frank Act.
Now it’s the same story at the SEC, where a majority of the Commission, including a former industry lobbyist, has refused even to put out for comment a proposal to enhance the regulation of money funds, which have been identified by the Financial Stability Oversight Council as a potential source of systemic risk. According to this source, Schapiro is eagerly looking forward to retirement and rarely goes to the office anymore.
Therefore, no regulations can be considered until the agency is restructured some time after the turn of the year.
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