Dissolve the SEC
A few days ago I wrote about the $5 million fine the SEC gave to NYSE for allowing certain customers prices before other customers. I was baffled that the fine is so low- access like that allows the customers to make outrageous profits, and it seems like the resulting fine should be more along the lines of those profits, since kickbacks are probably in terms of percentages of take. The lawyer fees from this case on both sides is much higher than $5 million, for christ’s sakes.
But now I’m even more outraged by the newest smallest fine, this time an $800,000 fine for a dark pool trading firm eBX. From the Boston.com article:
Federal securities regulators on Wednesday charged Boston-based eBX LLC, a “dark pool” securities exchange, with failing to protect confidential trading information of customers and for failing to disclose that it let an outside firm use their trading data.
The Securities and Exchange Commission said eBX, which runs the alternative trading system LeveL ATS, agreed to settle the charges and to pay an $800,000 penalty.
You know that if I can actually consider paying the fine myself, then the fine is too small. It’s along the lines of the cost of college for my kids.
Look, I don’t care what it’s for: if the SEC finds you guilty of fraud, it should threaten to put you out of business. Otherwise why should they waste their time doing it?
On the one hand, I’m outraged that these fraudulent practices are being so lightly punished. Indeed it’s worse than no punishment at all to get such a light punishment, because it establishes precedent. Now exchanges know how much it costs to let certain traders get better access to data than others, and as long as they charge sufficiently, they’ll be sure to make profit on it. Similarly dark trading pools know how much to charge third-party data vendors for their clients’ “confidential trading information.” Awesome.
On the other hand, I’m outraged at the SEC for not picking their fights better and for general incompetence. Here they are nabbing firms for real fraud, and they can’t get more than $800,000? At the same time, they’ve decided to go into high frequency trading but what that seems to mean to them is that they’ll finally collect some tick data. I’ve got some news for them: it’s gonna take more than a little bit of data to understand that world.
The SEC needs to concentrate more on not trying to keep up with the HFT’ers of the world, since it’s a lost cause, and spend more time thinking through what policy changes they’d need to actually do their job well – for example, what would they need to get Citigroup and Bank of America to admit wrongdoing when they defraud their customers? Instead of wasting their time trying to keep up with HFT quants, what would they need to institute a transaction tax, or some other policy to slow down trading? What would they need to be able to shut down firms who sell confidential client trading information?
The SEC needs to write a list of policy demands, pronto.
And if the political pressure the SEC receives to not actually get anyone in trouble is too strong for them to do their job well, they should either quit in protest or make a huge stink about being kept from completing their mission.
I get it, I’ve talked to people inside the SEC who want to do a better job but feel like they aren’t being given the power to. But I say, enough with the resigned shrugs already, this stuff is out of control! Continuing in this way is giving the public the false impression that there’s someone on the case. Well, there’s someone on the case, all right, but they aren’t being allowed to or don’t see the point of doing their work. It’s bullshit.
I say dissolve the SEC so that people will no longer have any false hopes of meaningful financial reform.
I’ve been reading Sheila Bair’s book Bull by the Horns, and it’s really good. Maybe by the end of it I’ll have changed my mind and I’ll see a place for the SEC. Maybe I’ll have hope that these things have natural cycles and the SEC will have another day in the power position, like it had in the 1980’s. But right now I’m in the part of the book where the regulators, apart from the FDIC, are taking orders directly from financial lobbyists, and it makes me completely crazy.