Market Overview

Business Compliance Partners Reviews the State of Capital Markets and Regulations


Commissioner Daniel M. Gallagher of the Securities and Exchange Commission (“SEC”) discussed the regulatory priorities of the SEC and the state of capital markets at recent Securities Industry and Financial Markets Association (“SIFMA”) Regional Conference and Annual Market Structure Conferences.

San Diego, CA (PRWEB) October 25, 2012

As a regulatory compliance consulting company serving the financial services industry, Business Compliance Partners attempts to discern the regulatory tone and note the initiatives championed by the SEC, the primary federal regulator for broker dealers and registered investment advisers.

Regulations provide the framework but Speeches and Public Statements, Studies, Staff Interpretations, Investor Alerts, and Bulletins among other releases by the SEC are equally important because they provide information regarding rule interpretation and enforcement. Arguable this information is more important to Business Compliance Partners' clients than the underlying rule.

“Over the past several decades, our capital markets have undergone a series of extraordinary changes. Some of those changes have come about organically, that is, as the result of market participants innovating with new products and ideas,” said Commissioner Gallagher in his Market Structure speech.

Commissioner Gallagher discussed other changes triggered by the SEC and Congress Including the shifts from private mutually owned self-regulating exchanges and an association of dealers, to global for-profit exchanges, and trader practices that include the use of algorithms to trade decimalized securities in microseconds. He also spoke about the introduction of derivative products, “dark pools,” alternative trading systems and other advances in trading technology.

In the Market Structure speech the Commissioner questioned the relevancy of various aspects of existing regulations in relation to capital markets today, including:

  •     The Securities Exchange Act of 1934 and its 1975 amendment; and
  •     The Maloney Act of 1938

The Commissioner called for a comprehensive study of market structure and self-regulation before adding new regulations without examining the underlying regulatory framework.

At the SIFMA Regional Conference Commissioner Gallagher stated that, “Dodd-Frank was enacted to, among other things “promote the financial stability of the United States by improving accountability and transparency in the financial system, to end too big to fail, and to protect the American taxpayer by ending bailouts.”

The Commissioner voiced support for the objectives and some of the mandates of Dodd-Frank but questioned the scope of the human and financial capital necessary to fully implement this legislation and the things that were neglected.

“Dodd-Frank [contained a mandate that directed] federal agencies to remove references to credit ratings from their rulebooks may well be the clearest, most direct mandate we at the SEC have been given. It has the virtue of being responsive to one of the core problems underlying the financial crisis, over reliance on credit ratings by investors and regulators during a time when the rating agencies were falling down on the job,” said

Gallagher also remarked that Dodd Frank didn't address the $2.5 trillion money market fund industry that is critical to investors, municipalities, and other issuers. Stating that money market reform is the number one crisis-related issue and it warrant Commission time and resources.

SEC Chairman Mary L. Schapiro had also discussed money market issues in relation to the financial crisis during a Senate Committee on Banking, Housing, and Urban Affairs hearing prior to the SIFMA conferences.

“There are…………. other areas within the SEC's jurisdiction that were subjected to stresses during the crisis, but certainly were not, in any sense, causes of the crisis,” said Gallagher.

He noted that Securities Investor Protection Corporation, (“SIPC”), which was authorized by the Securities Investor Protection Act, (“SIPA”) faced challenges that are not addressed by SIPA, due to the Lehman Brothers failure, the Madoff and Stanford Ponzi schemes, and other financial collapses.

Commissioner Gallagher reiterated that the need to examine the regulatory framework in light of current market conditions, and most pressing problems remains. The importance of creating criteria or standards for setting priorities and introducing rules are based on sound analytic foundations while protecting investors, promoting efficiency, competition, and capital formation.

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