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Our Nation’s Toughest Job

23

February, 2012

 
No, we are not talking about the White House. Heck, he’s with a band singing Sweet Home Chicago with Mick Jagger, Buddy Guy, Derek Trucks, and Warren Haynes.

 

 

Of course we are talking about the job of the SEC Commissioner. Mary Schapiro has been at the helm trying to steer a ship through the most tumultuous waters the agency has ever seen. Once can only imagine the “ha ha’s” she must receive from former chairmen Levitt and Cox, whose messes she is cleaning up after. She is juggling Dodd Frank, derivative regulation, HFT, money market fund issues, the explosion in the proliferation of ETF’s – of which most are incomprehensible to the majority of investors, and a revolving door that spins almost as quickly as an HFT “market maker’s” quote on NASDAQ. And she is doing this amidst a tide of investor equity withdrawal from the marketplace and the most volatile market in history as a backdrop – think Fall 2008, Spring 2009, the Flash Crash, as well as the Fall of 2011.

Since 2009 Chairman Schapiro’s SEC has proposed the banning of flash-type orders, and the regulating of dark pools, and has implemented a few regulations in the aftermath of the Flash Crash (banning of naked access, stub quotes, and the introduction of single stock circuit breakers). She has a long way to go, though, and she knows it. She spoke yesterday morning, and you can watch what she had to say about high frequency trading here. Or you can read about what she had to say in the Washington Post here. Or you can read what she had to say in the Wall Street Journal here. Check out all the comments after the WSJ article. You think America is fed up with HFT?

Do you want the index card version? She hinted at doing more regarding the examination of algorithms and their testing. She admitted the agency needed to understand HFT more. She also said say that cancellation fees for excessive quotes, more market maker obligations, and a minimum time in force period for orders are all “in play.” She also acknowledged that her biggest challenge is internal bandwidth at the SEC; she does not have enough resources. The same folks juggling HFT issues are also juggling swap regulation, as well as the mind-numbing barrage of SRO Rule changes that the exchanges throw the SEC’s way every time they want to tinker with fees or order types (PS when they tinker with fees, they raise investor fees, and lower HFT fees and increase their rebates).

We think she gets it. Our favorite quote of hers from yesterday:

She lamented trading that is “unrelated to the fundamentals of the company that’s being traded. It’s got very little to do with whether you think IBM’s got a great business plan and solid earnings growth in its future . . .and a lot more to do with what’s the minuscule aberrational price move that you can take advantage of because you’ve co-located your computer with the exchange and can jump on that in microseconds,” she said. “And that worries me in some ways.”

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