SEC chief in call to arms on markets

Editor’s Note: It is incumbent on the SEC to conduct international cyber-regulatory coordination activities in a manner consistent with: 1) OMB’s U.S.-EU High Level Regulatory Cooperation Forum – Stakeholder Session; and 2) all relevant provisions of the cybersecurity Executive Order.

From: The Australian


US Securities and Exchange Commisssion chairman Elisse Walter has urged more international co-operation between securities regulators as they deal with increasingly borderless global capital markets thanks to the rise of the internet and related issues such as cyber attacks.

In a call to arms for securities enforcement agencies around the globe, Ms Walter is anticipating Australia will take a lead role in enhanced global co-operation, particularly as Greg Medcraft, chairman of the Australian Securities & Investments Commission, takes up his role as the chairman of the International Organisation of Securities Commissions (IOSCO).

“I would like to see an intensification and an enhancement of things that have started to happen already,” Ms Walter said in an exclusive interview with The Australian from Washington at the weekend.

“Australia is a leader in international discussions which we are all talking about — the best ways we can implement our systems and what we can learn from each other. I would like to see your country continue to play that role. A lot of that will happen through Greg Medcraft’s role with IOSCO. That’s centrally important because it encompasses securities regulators around the globe.”

Mr Medcraft, whose was elected last year for the 12-month rotating chair role which started this month, said IOSCO should become the key global reference body for securities regulation, in much the way the Basel Committee was seen for banking regulation and supervision.

He said the danger was that the pace of financial innovation meant an ongoing risk that it would outpace regulation.

He also highlighted the trend of savings migrating from the banking system into the securities regulatory environment, which also meant the vigilance of ASIC, and more broadly IOSCO, was more important than ever.

This was particularly relevant in Europe and the US, where bank deposit rates were negligible and bank customers looked elsewhere for yield.

Ms Walter will be delivering an address by video this morning to ASIC’s annual forum. She was originally to have attended the conference in Sydney this week, but was unable to do so due to US budget cuts known as the “sequester”.

Ms Walter said Mr Medcraft was “playing an extraordinarily important role on the international stage” and agreed with him that things once seen as purely domestic challenges were now increasingly “cross-border”, adding: “We need to pay attention to what others around the world are doing.”

Ms Walter, who took over as SEC chairman last December, said the potential for cyber attacks was a “very important issue in the marketplace right now”.

“We think that, particularly with entities like securities exchanges which are the infrastructure of the marketplace, it is incredibly important to ensure they have the right kind of controls in place.

“We recently proposed a new regulation called Systems, Compliance and Integrity, which will require exchanges and other entities that are important to the marketplace to have the right kind of controls of their technology in terms of developing new technology and testing it and following up when there are problems.”

Ms Walter said that high-frequency trading was another issue the SEC was studying. “It is definitely an issue that is on our radar screen and we are going to be looking at it quite intensively.”

Studies on the impact of high-frequency trading on the market had shown “very mixed” results.

Similarly, so-called dark pools, where trading was done away from the conventional stockmarkets, was something global regulators were tackling. “They serve some valuable functions for investors who have some very large trades to make and who may believe that having those trades be visible all at once in a marketplace may unduly move the market for their securities.

“On the other hand, they do raise issues in terms of how they should behave and whether at some point they should be subject to the same rules as other types of marketplaces. That is something that is very much on our agenda.”

Ms Walter said other financial innovations included “crowd funding”, which was more akin to donations but still required regulatory protection. “It is in the non-securities area where you are not talking about selling investments; you are talking about either contributions or donations or, in essence, buying products. It can be an effective form of financing but there are a variety of investor protection concerns.


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