TGIF on HFT
by Jim Toes
It’s Friday and for many of us in the financial industry, it could not come soon enough. This has been a highly emotion-charged week. Now, as we head into the weekend to spend time with friends or stand on the sidelines of children’s sporting events, we will undoubtedly face inquiries from those outside our industry about what happened. “Who were those two guys going at it on CNBC?” A natural reaction would be to get defensive in our responses, but before you do please consider a different tact.
“Everyone who has tweeted, issued a press release, posted a blog or has had the courage to appear on television demonstrated their passion for our industry. Their willingness to expose themselves to criticism, both constructive and not, is rarely seen in other industries. So, I’ll take what happened this over the alternative of working with sloths.”
Yes, this may not have been our industry’s “prettiest” week, but nothing that contributes so much to our nation’s fabric and worth fighting for is “pretty” 24/7, 365. Capitalism and democracy have their share of moments when individuals who are passionate about issues worthy of being passionate about, will get swept up in emotional moments. These moments sometimes put into motion a series of other events. But these moments are just that – moments. They do not define the outcome; they simply are part of the process. In some ways, this week was one of our industry’s finest. Everyone who has tweeted, issued a press release, posted a blog or has had the courage to appear on television demonstrated their passion for our industry. Their willingness to expose themselves to criticism, both constructive and not, is rarely seen in other industries. So, I’ll take what happened this over the alternative of working with sloths.
As pointed out in a report provided by the Washington D.C. firm, Williams & Jensen, LLC, the methodology by which today’s SEC collects fees was established in 2002 and then modified by the Dodd-Frank Act in 2010. The SEC’s budget in 2001 was $ 423mln, but the Dodd-Frank Act significantly increased its responsibilities, including to additional asset classes. At the same time, the Dodd-Frank Act shifted 100% of the responsibility for funding the SEC to entities and investors that pay the section 31a fees when buying or selling equities, while other fees that previously contributed to funding the SEC are directed to the general Treasury. In short, the mechanism for funding the SEC was narrowed rather than broadened to offset the costs of regulating other asset classes and activities.
The question we need ask ourselves is: “What do we do now?” For that answer, there are no shortages of experts, but there were two who offered input this week that is consistent with STA’s principles.
Whatever policy solutions are pursued, they must both enhance the functionality of the market and restore public trust and confidence in Wall Street. Industry, specifically traders and exchanges, must focus on cooperation instead of clamoring for speed in a race to the bottom, which would only leave investors in the dust and force consumers to shoulder the burden of another financial crisis.
– Senator John McCain
“The approach by the SEC on these issues needs to be data driven and disciplined, to determine where high frequency trading fits into the range of market quality issues.”
– Securities and Exchange Commission Chair Mary Jo White
The task now is to clearly define the problem (s) we’re trying to solve, propose solutions, have vigorous debate and build consensus based on data. It’s in everybody’s interests to have markets that serve their public purposes of capital formation and price discovery, and also are fair, transparent, liquid, efficient and stable. If we can agree on the problems and the goals, we can agree on solutions.
On a personal note, I am looking forward to watching CBS this Sunday evening. The Country Music Awards will be on and assuming Garth Brooks and Taylor Swift do not sing any duets on HFT, next Monday will start a prettier week for our industry.
Senator McCain’s Press Release here
SEC Chair White’s testimony here
STA New York’s Conference April 10th program here