There’s pretty much no way we can ever expect the Securities and Exchange Commission to be competent at regulating high tech trading methods. The odds are too badly stacked against the SEC, and the rewards from the private markets are too great.
The Wall Street Journal has an article today about the inadequacy of the SEC. Basically, it says the SEC needs to hire a bunch of quants. Unfortunately, the universe of people with quant potential is quite small, those with real quant skills is even smaller, and the demand is still high. So the SEC’s basically out of luck.
The agency lacks its own traders with knowledge about cutting-edge strategies and how the markets operate. It long ago ceded the daily surveillance of trading to self-regulatory organisations, like NYSE Regulation and the Financial Industry Regulatory Authority. And it takes a lawyerly approach to regulation and rule making that rarely employs deep analyses of real trading data.
Jonathan Katz, who left the SEC in 2006 after 20 years as secretary, says the complexity of modern markets poses a stern test for the agency.
“You need the quantitative, analytical capacity that the agency has never had,” Mr. Katz says. “You need to start looking at these issues not only as legal compliance issues, but you need to look at them also as questions of national economic policy: How do the markets truly function?”
The SEC’s examination of the trading tactics comes as the agency is under pressure to prove to Congress and investors that it is up to the job many say it failed to do in the lead-up to the financial crisis.
Maybe they should just hire Tyler Durden at ZeroHedge. Better yet, it should probably give up the idea of trying to make the markets a level playing field that inspires confidence in investors. Let the sophisticated players duke it out. Average investors are better in low cost passive investments anyway. The SEC has plenty of work to do pursuing inadequate disclosures and false statements from public companies.
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