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2009 Review: Washington Strikes Back
Washington on the Warpath
Traders Magazine Online News, December 17, 2009
Whether you were a trader in 2009 or an investor, the highs and lows were enough to give anyone an excuse to reach for the medicine cabinet. The markets crashed big time in the first quarter, and rebounded from early March to early November by about 55 percent. At presstime, the Dow Jones Industrial Average was up roughly 16 percent for the year.
Mary Schapiro, SEC
Besides the market's wide mood swings and the conviction of Ponzi-scheme artist Bernard Madoff, who received a 150-year sentence, it was really the year of the regulator-and for the regulator's overseer, Congress. Politicians injected themselves into a number of trading questions relating to order types, trading styles and venues, like dark pools. Many in the trading industry scratched their heads in disbelief when some critics took positions on complex trading issues, wondering if these pundits knew their high-frequency trade from their flash order. The critics included Congress, editorial commentators and the investing public.
Still, it was Securities and Exchange Commission Chairman Mary Schapiro and her staff who had their hands full. All the buzzwords in '09--like high-frequency trading, co-location, flash orders, dark pools and short selling--fell into their lap and needed to be addressed. The SEC is expected to issue a concept release on some of these issues. Against this backdrop, Traders Magazine presents its top stories of 2009.
Washington on the Warpath
This past year, Washington went on the warpath against Wall Street. And it wasn't limited to over-the-counter derivatives regulation or executive compensation practices. The securities industry's market structure also became one of the bad boys making headlines around the nation, fueling a regulatory crackdown of sorts.
The U.S. Congress is, arguably, driving the agenda, with Senators Charles Schumer, D-N.Y., and Ted Kaufman, D-Del., prodding the SEC to act. In addition, market participants such as the securities exchanges are raising their voices and telling the Securities and Exchange Commission what changes they would like to see implemented in the marketplace.
The SEC is now casting a wider net over a range of practices, from short selling to flash orders and co-location strategies. Early next year, it will issue a long-awaited concept release that raises questions about how high-frequency trading and dark pools may be affecting the marketplace. This is being done as Congress stands over the SEC, cracking the whip and lashing out at dark pools and other trading features it has decided it doesn't like.
The SEC's concern is investor protection and investor confidence. One of its gauges for determining if the markets are fair and transparent is whether two-tiered markets, in which some people have access to information that others don't, are developing. SEC Chairman Mary Schapiro made clear in October that her agency is on the lookout for practices that create "a risk of private markets and two-tiered access to information." She took the SEC's reins last January, after the near-meltdown of the markets as a result of the subprime crisis.
