STANY Says Trading Under Attack by Lawmakers and Regulators
Traders Magazine Online News, April 22, 2010
It was the best of times for the trading industry. Now it's the worst of times. Just a few years ago, the trading industry, celebrating its victories in reducing Section 31 fees and ending the uptick rule, seemed on a regulatory roll. Regulators and lawmakers appeared to listen respectfully to the industry's view of markets.
Chuck Padala, STANY
But that has dramatically changed.
Now it is criticized by numerous lawmakers. It is despised by some of the mainstream media. Dramatic market structure changes could potentially put some firms out of business. So the industry must now play defense.
"Today, the regulatory process has been politicized, and our membership is now vulnerable to the knee-jerk reactions of Congress that are, by nature, more reliant on popular appeal than on a thoughtful analysis of empirical data," said Chuck Padala, president of the Security Traders Association of New York, which is gathering for its 74th annual conference.
In any year, prospective new trading rules are a big issue for STANY, the Security Traders Association's largest chapter. But in this year's environment, with the memory of the 2008 market meltdown still fresh, things are very different, STANY officials claim.
Regulators and lawmakers are in a lean and hungry mood as they look at the securities industry. Indeed, trading executives believe potential new rules--affecting everything from sponsored access to dark pools to an onerous new tax on transactions--have a good chance of passage in a new, hostile climate for the trading industry.
They point to the recent decision for an alternative uptick rule. The old uptick rule was set up to prevent trading abuses in the bear market of 1929 to 1932. Abolishing that Great Depression trading rule in 2007 was an issue the trading industry worked on for years.
But it was quickly reinstated in a whirlwind of public demand after the market meltdown of 2008. John Giesea, president and CEO of STA, fears radical market structure changes could be coming soon from the Securities and Exchange Commission and Congress.
"Great care should be taken with market structure changes," he warned.
Padala said that well-intended market-stress-standard tests and new rules governing sponsored access could drive up the costs of his members. This could be very difficult for an industry that has already lost thousands of jobs, trading executives say.
What should the industry do?
"The best thing we can do is continue to educate our representatives and make them understand that a transaction tax would cripple our industry by dramatically reducing trading volumes, thus leading to more job losses," Padala said. But so far, he admits, many lawmakers have dismissed these arguments.
So Padala and others in the securities industry must play defense. Industry critics in and out of Congress have a list of various regulatory and legislative proposals that the trading industry fears would cripple its ability to deliver liquidity to both individual and institutional clients. The misperception on the part of the public, combined with the exploitation of this misunderstanding by some politicians, has changed how the industry functions, STANY officials say.
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