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Tim Quast
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We're All HFTs Now

In this guest commentary, author Tim Quast looks back at the history of HFT and how the market has evolved to where many firms now fit the definition of high-frequency trader.

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February 1, 2001

Levitt Leaves a Heritage of Controversy

By William Hoffman

Like the proverbial prophet without honor, Securities and Exchange Commission Chairman Arthur Levitt leaves office amid controversy and criticism.

"The investment community will be much better off without Arthur Levitt," said Tony Broy, chief executive at Hill Thompson Magid & Co., in Jersey City.

One business scholar disagreed. "In the modern era, Levitt was the best SEC chairman that we've had," said Daniel Gross, a fellow at the New America Foundation, in Washington, D.C. He is also the author of a book on Wall Street, "Bull Run," which chronicled the alliance between finance, securities and government throughout the 1990s boom years.

"He foresaw that the access to information was the advantage professionals held over investors in the markets," Gross said. "He was a real lightning rod in advocating change."

Levitt's initiatives gave individual investors some of the same market privileges as investment professionals. "He's responsible for people getting out there and gambling away their savings," Broy said. "I don't think the SEC should be regulating the securities industry anymore -the various state gambling authorities should be in charge of that now."

Longest Tenure

Levitt, 69, leaves office having served seven-and-a-half years as the SEC's 25th chairman. That's the longest tenure in the agency's 66-year history. He worked 16 years in the securities industry before becoming chairman of the American Stock Exchange from 1978 to 1989.

Levitt was named to a five-year term as SEC chairman by President Clinton in 1993, and was reappointed in 1998. He said he decided to step down to let President George W. Bush select his own chairman.

John J. Wheeler, manager of equity trading at American Century Investment Management in Kansas City, Mo., said his firm was "very sad to see [Levitt] go. We think Mr. Levitt has done a lot to help the retail and institutional investor alike." While expected, Levitt's departure comes at an important moment for the industry, with decimalization and Nasdaq's SuperMontage on the industry's agenda.

Bush's Choice

Broy looked forward to President Bush's pick for SEC chairman. "If Bush tries to undo some of the damage that has been done in the last several years, we could get the baby back in the bathtub, because Arthur has been throwing both out for years."

Broy generally hoped a new SEC regime would restore some of the institutional blocks that separate professional market makers from amateur investors, but he otherwise declined to cite specific reforms. Broy was heartened to hear talk that Senate Banking Committee Chairman Phil Gramm (R-Texas) would undertake a top-to-bottom review of securities legislation, ranging back to the 1933 Securities Act. A Gramm spokesperson noted that the committee chairman has long-favored such a review, and said no schedule has been set for it.

Spirit of '33

Broy said, "I absolutely believe that there are rules that have been placed recently that are not in the spirit of the 1933 Act."

Yet Gross cautioned that "Bush doesn't have the kind of personal links to people on Wall Street that Clinton had." When financiers needed emergency help bailing out of Mexico, Russia and East Asia during the 1990s, Clinton could call upon cumulative decades of securities and finance industry experience in his cabinet, Gross noted. Bush's appointees at the departments of Commerce, Treasury and other securities industry-sensitive posts come mainly from industry, rather than finance, he added. "Wall Street is one place where the personal relationships really matter."