Summit Notebook

Senator Reed sees need for speed to chase bad guys

Ann Saphir takes a look at Senator Jack Reed’s comments on cars and trading.

With traders buying and selling at dizzying speeds these days, underfunded U.S. regulators can’t hope to keep up unless they get more funding, better resources, and faster technology — think cars,  Democratic Senator Jack Reed says.

Reed, who drives a 1991 Ford Escort, says he loves his car for city driving.

But if he had to take on a race car, he’d need to upgrade – and the same goes for the Securities and Exchange Commission and the Commodity Futures Trading Commission, which are stuck using outdated technology even as their policing obligations pile up after Dodd-Frank financial reform.

House Republicans have moved to block funding increases for the regulators, saying they don’t want to add to the federal deficit.

“If I’ve got a 1991 SEC, CFTC trying to catch high frequency traders, it’s never going to happen,” Reed told the Reuters Futures Face of Finance Summit. “We’ve got to get them, maybe not up to Ferrari level, but at least up to a Fusion.”

But is that fast enough?

Against high Hill drama, SEC chief mum on Goldman

First of all, Securities and Exchange Commission Chairman Mary Schapiro would not talk about Goldman Sachs.

There was no drawing her out. The head of the agency that filed a civil fraud lawsuit charging that Goldman misled investors would not say a word about the case.

Quite the opposite from the high-drama being played out at the same time on Capitol Hill where Goldman Sachs executives were facing the fusillade at a Senate hearing, where one senator kept repeating “shi–y deal.” (There are two t’s missing from that word).

Schapiro in an interview at the Reuters Global Financial Regulation Summit just was not going to go there. “I’m not going to comment on Goldman,” she said before one reporter even got the question out.

Even while responding to a tangential question, she began by saying “put the Goldman case aside,” careful to make sure her answer would not be linked to the investment bank.

Asked whether this could be seen as the start of the SEC’s war on Wall Street, Schapiro replied: “Well first of all, I’m not going to comment on Goldman.  There is no war on anybody.”

She went on to say: “I guess what I would like to see is people take a big step backward and think about who are we here to serve, and how do we best serve them?”

Lamenting the good ol’ days

    The sprouting of privately-held alternative trading venues has seriously mucked up the trading landscapes in the United States and elsewhere, or so says Thomas Caldwell, chairman and chief executive of Caldwell Financial.     Caldwell, founder of a major exchange investment firm, sees a world that has quickly evolved into one of nimble, electronic players coupled with more and more trading venues with the proliferation of alternative trading systems, or ATSs.     (They’re also called electronic communications networks (ECNs) in the United States and multilateral trading facilities (MTFs) in Europe).     These new venues, which can include the ominously-named dark pools, or alternative venues, where they can secretly match buy and sell orders, leads to, among other things, “deeply flawed” pricing for market participants, in Caldwell’s view.     The idea of bank-backed stock trading venues is also suspect, says Caldwell.     “Publicly-owned exchanges, open and visible trading, an auction market environment,” he said during the Reuters Exchanges and Trading Summit in New York.     “These are centerpieces if you really want an economy to grow and you want to encourage entrepreneurs with access to capital. The more we get into gamesmanship and side products and all this other stuff it depletes from this.”     (Posted by Jennifer Kwan)

How to gum up an exchange merger: salt water

It’s a puzzle M&A bankers and corporate executives have been trying to solve for years: how far from your home market can an acquisition take place and ultimately stumble over cultural differences? It’s a question that looms large as quintessentially Italian automaker Fiat prepares to swallow up Chrysler – inventor of the K-car and the minivan – and which reportedly haunts St Louis-based employees of Anheuser Busch in the aftermath of their company’s takeover by the penny pinching Belgians and Brazilians at InBev.

Gary Katz, CEO of Deutsche Boerse unit International Securities Exchange, insisted during his appearance at the Reuters Exchanges and Trading Summit that all has been sweetness and light since the Germans assumed control of the upstart American options exchange and that there has been “nearly zero turnover” since the takeover.

But Thomas Kloet, Chief Executive of Canadian exchange powerhouse TMX, was one of several executives at the summit who insisted that cross border mergers can often be a recipe for disaster and that the ideal mergers are “domestic roll-ups” like CME Group’s takeover of Nymex and the Chicago Board of Trade or indeed TSX Group’s takeover of the Montreal Exchange, which created TMX.

Implicitly criticizing some of the first-ever cross border deals in the sector like NYSE’s merger with Euronext, Kloet said: “there are significant regulatory differences that make cross border mergers pretty difficult to do, especially when they start passing over salt water, so to speak.”

Listen to the attached recording to hear the former ABN AMRO senior managing director’s ruminations on exchange M&A in full.

from LEGACY Reuters Summits:

Troubled Freddie Mac exec was “straight arrow”

James Lockhart, head of the Federal Housing Finance Agency

The chief financial officer at Freddie Mac who died in an apparent suicide was a capable executive who had no involvement in any improper accounting, according to Freddie Mac's federal regulator.

"David (Kellermann) was a very conscientious and hard-working person and took, unfortunately, too much onto himself," James Lockhart, the director of the Federal Housing Finance Agency, told the Reuters Global Financial Regulation Summit in Washington.

Kellermann was found dead on April 22 in the basement of his Virginia home after having hung himself, local police sources said. Some news reports at the time tied Kellermann's death to ongoing federal investigations into Freddie Mac's accounting.

"You know, one of the things I find unfortunate? Some of the speculation about accounting issues at Freddie. They are very rigorous," Lockhart said. He described Kellermann as a "straight arrow" whose reputation was above reproach and said that the failings at Freddie Mac were widely shared.

Last September, federal regulators took over Fannie Mae and Freddie Mac as the the companies losses on the housing market mounted.

SEC’s Schapiro says journalist job cuts worrying

Mary Schapiro, America’s new top cop for the securities industry, said the current mass culling of journalists’ jobs is a concern because it could reduce the number of leads that regulators get as they seek to crack down on nefarious behavior.

“It’s an absolute worry for me because I think financial journalists have in many cases been the sources of some really important enforcement cases and really important discovery of practices and products that regulators should be profoundly concerned about,” the chairman of the Securities and Exchange Commission told the Reuters Global Financial Regulation Summit in Washington on Tuesday.

“But for journalists having been dogged and determined and really pursuing some of these things, they might not be known to the regulators or they might not be known for a long time,” she said.

But Schapiro, who was speaking a day after Conde Nast announced the closure of its glossy business magazine Portfolio only about two years after it launched, held out some hope for the business reporting trade. She said that some journalists should consider applying for jobs at the SEC.

“Investigative journalism actually would be a pretty interesting skill set for us to have. We’ve talked about financial analysis, we’ve talked about forensic accounting being skill sets that we really need — understanding of complex trading, strategies and systems, but it’s one of the things the SEC has to do. It has to really broaden its horizons and bring in people who think about things a little differently than it has historically.”

But what would having Mr/Ms Investigative Journalist working there do for the SEC’s tarnished media image? And how would a hard-nosed investigative journalist respond to all those agreements to let some of the bad guys off with a rap over the knuckles and a small fine (those infamous “did not admit or deny” settlements)?