Lack of funds to restrict SEC work: Schapiro

By Rachelle Younglai

WASHINGTON (BestGrowthStock) – Budget shortfalls will restrict the U.S. Securities and Exchange Commission’s work, its chairman said on Tuesday, limiting the SEC’s ability to police credit rating agencies, ferret out fraud and write rules to supervise derivatives markets.

Cutbacks from Congress could delay rules to right the financial system after the 2007-09 economic crisis and put on hold reforms aimed at bolstering the integrity of stock markets after the May 6 “flash crash,” Mary Schapiro said in an interview.

“We will have to take some more steps to cut back,” Schapiro said. “At this stage it will impact our work.”

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.

All hiring is now frozen. Hundreds were needed to help implement the Dodd-Frank legislation. The SEC 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,” said Schapiro, who previously led the CFTC and broker-dealer watchdog Finra. The SEC also has cut back on non-essential travel, which has impeded its employees’ ability to take depositions from witnesses and examine the companies, brokers and advisors the SEC regulates.

The SEC, criticized for missing Bernard Madoff’s epic fraud, is under pressure to hold companies and individuals accountable for the recent financial crisis.

Aside from not being able to hire new staff, the SEC might not meet deadlines required by the Dodd-Frank law. The SEC already has 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.

This will bode well with Republicans, who want to slow down the pace of rulemaking. “We need to get this right. The health of our capital markets depend on it,” said Republican Scott Garrett, the incoming chairman of a House subcommittee who has vowed to ensure that new rules are not rushed by tight deadlines.


Regulators are scrambling to adopt more than 200 rules designed to plug gaps exposed by the worst financial crisis since the Great Depression.

For Schapiro, who has worked for more than two decades in Washington as a financial markets regulator, her tenure as SEC chief has been the busiest to date.

“It’s unrelenting,” said Schapiro.

Traditionally at odds with each other, the SEC and CFTC are now working closely together to craft new rules for the estimated $600 trillion over-the-counter derivatives market.

Schapiro and CFTC Chairman Gary Gensler have had to forge even stronger ties after the May 6 flash crash temporarily wiped out about $1 trillion in paper value from stock markets.

“We do need to continue to act like our hair is on fire, but in a thoughtful and constructive way,” Schapiro said. “I don’t want to let up.”


The 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 track stock orders as they happen.

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 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.”

(Additional reporting by Herbert Lash: Editing by Robert MacMillan and Carol Bishopric)

Lack of funds to restrict SEC work: Schapiro