US SEC taps ex-FINRA official as trading and markets head -sources

NEW YORK/WASHINGTON Thu Feb 13, 2014 4:24pm EST

NEW YORK/WASHINGTON Feb 13 (Reuters) - The U.S. Securities and Exchange Commission is close to naming lawyer and former regulator Stephen Luparello as head of its division that oversees exchanges, brokerages, and clearing agencies, according to people familiar with the situation.

Luparello is SEC Chair Mary Jo White's top pick as director of the Division of Trading and Markets, though an official offer for the job has not yet been made, one of the people said.

The government is running a background check on Luparello, who will accept once the process is finished, the source said, adding that it is unclear how long the background check will take.

Luparello, currently a partner at law firm WilmerHale, has already had interviews with top SEC officials, another source said.

The SEC declined to comment.

Prior to WilmerHale, Luparello spent 16 years at the Financial Industry Regulatory Authority (FINRA), where his responsibilities included market regulation and enforcement. He has also worked for the SEC in the past, as well as the Commodity Futures Trading Commission.

The SEC has been trying to fill the Trading and Markets post for months now, but has had difficulty finding someone to accept the job. Unlike some of the other top SEC jobs, the position requires in-depth knowledge about niche, in-the-weeds SEC rules that affect exchanges and broker-dealers.

Other people who have been approached for the job include Chris Concannon, a former executive with Nasdaq OMX Group Inc who now works for high-frequency trading firm Virtu Financial LLC, and Joseph Lombard, a market structure expert at law firm Murphy & McGonigle.

FULL PLATE

The division has the busiest agenda this year in the way of rule-making compared with the rest of the SEC's divisions.

It is tasked with completing work on all of the new rules required by the 2010 Dodd-Frank Wall Street reform law on over-the-counter derivatives.

It is also trying to finalize a rule aimed at reducing the chances of major market glitches, a measure that came about in the wake of several high-profile technology failures including the near-collapse of Knight Capital, now a part of KCG Holdings , following a $461 million trading error.

The division also serves as the SEC's first line of defense in the event of a major market event.

In the case of the May 6, 2010 "flash crash," for instance, the division was responsible for piecing together what happened to cause the Dow Jones Industrial Average to plunge more than 700 points before sharply rebounding.

Although the flash crash was not caused by high-speed trading firms, it prompted a major debate over whether such trading strategies may disadvantage certain smaller traders.

Now, several years later, the division is still studying what, if any, changes may be in order to improve the U.S. equity market structure.

In particular, many SEC commissioners have asked the staff there to re-evaluate the impact of a 2005 reform known as "Reg NMS." That rule was designed to spur more competition among exchanges and ensure an even playing field for investors.

But since its inception, critics have alleged the rule has led to fragmentation of the market and has spurred the rise of high-speed trading.

As head of the division, Luparello will be in charge of reviewing what, if any, market structure rules are in order.

The SEC recently started subscribing to the same proprietary market data feeds used by high-speed firms, and has been studying the information to better understand market trends.

Last year, the agency launched a new website that lets the public get a snap-shot of the data and conduct its own research as well.

The coveted director position is currently being filled by an acting director, John Ramsay.

Bloomberg first reported that the SEC was considering Luparello for the job.

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