Posted on Thursday, November 11, 2010
CHICAGO () - The top securities regulator said on Tuesday she doubts her agency's overhaul of the country's financial rules will be affected by the recent U.S. election, where pro-business Republicans seized control of the House of Representatives and made gains in the Senate.
Mary Schapiro said that as long as Dodd-Frank -- the regulatory overhaul passed earlier this year by the outgoing Congress -- remains on the books, her agency would continue to implement it.
"The law's passed," the SEC chairman told reporters after a speech at Northwestern University. "And while it could change, obviously, until it does, we have a responsibility to implement the law as it was passed."
Asked what her agency's top priority was, Schapiro said, "we have a long list." Under Dodd-Frank, the SEC must craft more than 100 rules for the financial industry, including new regulations for the $615 trillion over-the-counter derivatives market and hedge funds.
But she acknowledged that a focus on circuit breakers, that were implemented in the aftermath of the "flash crash", was "timely" because the current program ends December 10.
The circuit breakers give a company's stock a temporary reprieve from trading when it is in free fall.
She said that the circuit breakers had been triggered 15 times since the May 6 "flash crash," a plunge that briefly sent the equities market and related futures into a tailspin.
"We don't have a roadmap yet for you on exactly what we're going to do," she said of the modifications the SEC is mulling to the circuit breaker program.
"We're leaning toward a limit-up, limit-down approach -- but we're not settled yet."
The limit-up, limit-down approach, already used in futures markets, would set temporary price ceilings and floors for single stocks and could slow big price changes without stopping trading.
The SEC also is mulling tighter rules for market makers to ensure they will be able to provide liquidity to markets and avoid a repeat of what happened on May 6 when some market makers and big trading firms stopped trading and there were few buy orders for stocks.
Schapiro also said that an advisory panel set up to investigate the May 6 plunge had raised the idea of requiring algorithmic trading programs -- which have been implicated in the flash crash -- to be tested before they're deployed in the market.
"What's the level of understanding about how algos perform under different market conditions?" she said. "What are the issues with respect to an algo having an unintended effect in the marketplace? ... These are not issues for us so much as it is for the people who create them and introduce and make available to their customers."
By James B. Kelleher