Changing of the Guard at SEC
Traders Magazine, January 2013
So long, and thanks for the memories, even if they weren't so good.
That might have been outgoing Chairman Mary Schapiro's final lament as she stepped out the door at the Securities and Exchange Commission last month.
Schapiro took office in early 2009, as the nation's financial markets tried to recover from a meltdown that reached crisis proportions in September 2008. Her tenure also was punctuated by the May 10, 2010 Flash Crash. The agency faced huge criticism for not catching Bernard Madoff's multibillion-dollar Ponzi scheme, which cratered during the credit crisis. It also did not catch up to the barrage of rule-makings required of it by the 2010 Dodd-Frank Wall Street Reform Act. And the Consolidated Audit Trail initiative Schapiro launched immediately after the Flash Crash is still a work in progress.
"Chairman Schapiro took over the Securities and Exchange Commission at an extremely challenging time, both for the agency and for the markets," said Richard Ketchum, chairman and chief executive at the Financial Industry Regulatory Authority, following her resignation. "Ms. Schapiro's commitment to investors and investor protection is unwavering. She significantly improved the commission's enforcement division, boosted agency morale and streamlined the commission's processes."
In a recent note to clients, Themis Trading wrote that Schapiro, trying to steer a regulatory agency with huge responsibilities and constricted resources, should be lauded. "With all these hurdles she must be given credit for her accomplishments," the firm wrote.
Schapiro was the first woman selected as chairman.
After Schapiro announced her plan to depart, other top SEC officials followed suit. Robert Cook, director of the Division of Trading and Markets, said he was leaving, as did chief of staff Didem Nisanci and general counsel Mark Cahn.
Schapiro pushed hard to bring trading into its microsecond-measured, highly automated future. Starting with the Concept Release on Equity Market Structure back in January 2010, she solicited the market's collective opinion on the challenges facing it. Then, when the Flash Crash hit just four months later, Schapiro came out with fixes, in a flurry.
These included the outright banning of stub quotes, the abolition of so-called "naked access" and the creation of the Market Access rule 15c:3-5, to govern direct connections to markets granted clients by sponsoring brokers. The agency also brought out new single-stock and marketwide circuit breakers; and in April 2013, price bands that regulate how much a stock can move up or down in a given trading session are on track to take effect.
Still to come: The audit trail-likely to arrive in 2014-which will allow regulators to watch equities and options markets for unusual or abusive trading patterns; and "kill switches" that can stop trading in the event of a Knight Capital-like incident, where a market maker or other participant floods exchanges with erroneous orders or exceeds its own ability to stand behind trades it makes. No more algos gone wild.
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