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March 1, 2013

Switching Chairs Delays Changes

By Tom Steinert-Threlkeld

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  • Switching Chairs Delays Changes

President Obama's nomination of Mary Jo White to be the next chairman of the Securities and Exchange Commission brings delay and uncertainty about how equities markets will operate over the long haul, according to participants in industry discussions.

The uncertainty and delay will keep institutions from investing and dampen trading activity, said Bob Fuller, chief administration officer at Fixnetix, which provides market data and infrastructure services for high-speed trading.

"Until about 10 a.m. this morning, we had a chairman that we thought was going to be around for a while," said Brendon Weiss, vice president of legal and government affairs for NYSE Euronext, on Jan. 24 referring to acting chairman Elisse Walter.

Then, President Obama nominated Mary Jo White, who gained prominence prosecuting terrorists as U.S. attorney for Manhattan, to be chairman of the SEC.

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White's confirmation is likely to take months, Weiss noted. And her nomination comes just 40 days after commissioner Walter took over as chairman.

Walter took over when President Obama's first chairman, Mary L. Schapiro, stepped down after nearly four years in the post. During that time, Schapiro initiated a wide range of reforms, including ends to so-called naked access to electronic markets and "stub quotes," as well as introduction of new single-stock and marketwide circuit breakers after the flash crash of 2010. Schapiro also was responsible for implementing a wide range of new rules mandated by the 2010 Dodd-Frank Wall Street Reform Act, which remain on the regulator's task list.

With Walter already in lame-duck status while White, a litigator and partner at Debevoise & Plimpton LLP in New York, goes through confirmation hearings, most changes the SEC is trying to push likely will slow down, market professionals at the Security Trader Association midwinter conference in Chicago said.

In limbo, said Weiss: any sort of serious market structure change. "This kind of throws it for a loop," he said. "I wouldn't expect to see more roundtables on market structure or rules pertaining to Dodd-Frank" or the Jumpstart Our Business Startups (JOBS) Act.

Technical disruptions such as the 2010 flash crash and the spate of snafus that characterized 2012, which peaked with the Aug. 1 flood of erroneous orders that nearly undid Knight Capital Group, also have led to delays in long-term market structure change in the electronic trading era.

"One of the things that got lost" in all the attention was a well-thought-out 74-page market structure concept release that came out of the SEC in January 2010, said Steve Sachs, head of capital markets at ProShares.

That release sought industry comment on how to create metrics that effectively tracked "market quality," ensured fairness of highly automated markets, and looked at whether any high-frequency trading practices needed regulation and whether such developments as dark pools and co-location of trading equipment under the same roofs as the matching engines of exchanges needed review and possible regulation.