 Lee Cutrone
Managing Director, Industry Relations
The 2006 U.S. Financial Services Regulatory Climate
Discussion highlights
December 5, 2005
New York City
Topics:
Overall Regulatory Climate and the SEC
Reg NMS and the Hybrid Market
Reg NMS and STP
Central Matching, SDA & Global Collaboration
Soft Dollars
Hedge Fund Regulation
Participants:
Lee Cutrone, Managing Director, Industry Relations, Omgeo LLC
Sang Lee, Co-Founder & Managing Partner, Aite Group
Mari-Anne Pisarri, Partner, Pickard
On the Overall Regulatory Climate and the SEC
Lee Cutrone:
The first thing that I wanted to talk about was, was to get a fix on the overall regulatory climate. And that's really what we want to focus on--- the regulatory landscape coming out of Washington, what's happening, what's different, what's new. And my observation over the last couple of months has been that there seems to be two conflicting trends in Washington over the last year or so. We've recently seen one of the heaviest regulatory climates ever, with lots of new regulations coming out as a result of corporate and industry scandals. At the same time, we"ve seen a change in the administration of the SEC with a new chairman and new commissioners coming in. And in the minds of some, this changing of the guard could indicate that we'll see more of a laissez faire type of approach from Commissioner Cox and the Chairman Cox and the other commissioners. So, let me just start by getting a reaction. Mari-Anne, maybe you can talk about whether or not the appointment of this new slate of commissioners really represents any kind of change in direction. Are we likely to see a kinder, gentler SEC?
Mari-Anne Pisarri:
I'm not sure there is such a thing as a kinder, gentler SEC. I think people are reading a lot into the change in the chairman, and obviously there has been a lot of news generated by the commission. Normally, the commission itself is in the background to the regulation that it promulgates, and I think over the last couple of years stories that have come out of the commission have actually taken on a life of their own. I think there is a change, but I think it has to do as much with exhaustion as anything else. I mean believe it or not, the century is only five years old. And if you think where we started in the financial markets at the dawn of 2000, and then you had the collapse of the dot com stocks, you had the corporate scandals with Enron and WorldCom and Global Crossing, and you didn"t even get a chance to catch your breath before you had Canary Capital and all the scandals in the mutual fund industry. Then you had the spat between the New York Attorney General and the SEC vying for who was going to catch whom first. And then you had the spate as you referred to, of both legislation with Congress getting into the act, and the Commission saying to Congress, look you don"t have to do too much because we've gotten the message and, I don't want to say an unprecedented level of regulation, but a lot of regulation. Then there were some disagreements within the Commission, and, finally, three pending lawsuits against recently promulgated regulations. And I can't recall a time when three rules have been challenged in court at the same time.
The Mutual Fund Governance Rule is subject to a lawsuit by the U.S. Chamber of Commerce, and actually the court has staid that rule. And that's really I think one of the rules that generated probably the most dissent among the commissioners, or the most disagreement. And there is an oral argument scheduled on that for January 6, but the rule is staid now pending the outcome of this lawsuit. The hedge fund rule is being challenged, and there's an oral argument in that at the end of this week. And the Financial Planning Association is challenging the broker dealer exception rule under the Advisors Act. So, and I think this is a natural outcome of the volume of rules, and I think people are not shy about challenging what they don't like. And then as you point out, there is not only the change in the Chairman and another commissioner who left and was replaced, but also quite a changeover in the staff. The Director of Investment Management left in March, and his replacement has yet to be named. And the Acting Director is about to leave. The Director of Market Regulation is now one of the SEC commissioners and so there's an acting director there. And the General Counsel just announced his departure. So you've got a lot of that. I think there are changes, and I think again to some extent it's just there has been so much happening that---maybe this is wishful thinking--- maybe we're going into a little bit of calming down period to see where we are.
Lee Cutrone:
Those changes, those staff level changes, are they political appointments?
Mari-Anne Pisarri:
No.
Lee Cutrone:
They're usually career employees.
Mari-Anne Pisarri:
They are appointed, and they may or may not be generated up through the ranks of the employees, but certainly the Chairman gets to pick who he wants in the various divisions. But there's no confirmation by the Senate. So it's not political in that sense.
Lee Cutrone:
Sang what's your sense of what's happening there?
Sang Lee:
This really isn't my focus are per say. Most of the regulation I've focused on so far is Regulation NMS, the potential impact of that on electronic trading overall, and what is happening between the sell side and the buy side. I completely agree with Mari-Anne in the sense that we've gone through so many things just in terms of regulatory pressures over the last few years. It does seem like we're taking certain things back, and we're looking at the situation now trying to figure out how this is all going to play out. I mean we have regulation NMS which passed, but I highly doubt we'll be able to meet the deadline for the actual implementation which is June 2006. I do think the SEC is actually trying to see what happens and how things could be implemented. I think this is actually a very good approach. I do think, and especially when we talk about Reg NMS, that certain decisions were made, certain things were decided without actually thinking through the details, and I think it's actually extremely beneficial for the industry overall to take a step back and make sure we go through this process step by step to make sure that this is implemented in the correct way.
Back |
 |
|
|
