Lack of funds to restrict SEC plans: Schapiro

By Rachelle Younglai

WASHINGTON (BestGrowthStock) – Budget shortfalls will hurt the Securities and Exchange Commission even as it desperately needs funds to bolster equity markets and adopt new rules required by the Dodd-Frank financial overhaul signed into law this year, its chairman said on Tuesday.

The U.S. Congress is set to reject the Obama administration’s plan to boost funding for the SEC and fellow market regulator the Commodity Futures Trading Commission by millions of dollars.

“We will have to take some more steps to cut back,” SEC Chairman Mary Schapiro said in an interview. “At this stage it will impact our work.”

The regulator will have to postpone hiring five new staffers who understand algorithmic trading — the computer codes that power high-frequency trading and tend to dominate today’s marketplace.

“We desperately need them, but we can’t hire them,” Schapiro said. The SEC has also cut back on non-essential travel, which has impeded its employees’ ability to conduct exams and take depositions.

Aside from not being able to hire new staff, the SEC might not meet deadlines required by the Dodd-Frank law. It calls for new regulations for the estimated $600 trillion over-the-counter derivatives market and for new rules for the $1.7 trillion hedge fund industry.

The SEC has already stopped setting up a new office to sort through whistleblower tips and another to police credit rating agencies such as Moody’s Corp, Standard & Poor’s and Fitch Ratings.

The U.S. Senate on Tuesday approved a compromise bill to fund the government for several months, which will give Republicans the chance to push through big budget cuts when they take control of the House of Representatives in 2011.


A brief market crash in May, which sent the Dow Jones industrial average down nearly 700 points in minutes before recovering, shone a spotlight on the SEC’s inability to peer into the deeply fragmented markets.

Although the SEC has been thinking about new rules for high-frequency trading for months, Schapiro said the agency has not made “any final judgments.”

The SEC adopted temporary rules to give single stocks a reprieve if they were falling uncontrollably and clarified when and at what prices exchange operators such as NYSE Euronext would have to cancel erroneous trades.

Schapiro said the priority would be a rule to improve market surveillance. A “consolidated audit trail” would let the SEC to track stock orders as they happen.

“There is a pressing need” for such a trail for equity markets, she said.

Under the SEC’s proposal, trade information for every stock and listed option would have to report to a central repository, which would be owned and operated by broker watchdog Finra and the major U.S. exchanges.

The SEC had started a review of the country’s market structure in 2009, and had proposed rules to make anonymous trading venues known as dark pools more transparent and to ban flash orders that exchanges show to some traders before publicly revealing them to the wider market.

Schapiro said the dark pool and flash order proposals were still on the table.

“We need to improve our ability to see markets,” she said. “We have to make progress. The markets exist for public companies and investors. The structure has to work for them.”

(Reporting by Rachelle Younglai. Editing by Robert MacMillan)

Lack of funds to restrict SEC plans: Schapiro