WASHINGTON Wild market swings from lightning-fast, high-volume trading, as well as a trend toward private stock offerings, have U.S. financial regulators scrambling to keep up, officials said on Tuesday.
Even as they implement bank reforms following the 2007-2009 financial crisis, authorities are trying to come to grips with the next wave of challenges to the financial order, they said at the Reuters Future Face of Finance Summit.
With major exchanges combining to capture more of the mushrooming trading business, U.S. Senate securities subcommittee Chairman Jack Reed urged increased attention to market structure, transparency and volatility.
"We've got new platforms growing up every day, new techniques that are being developed to trade. I think the regulators, frankly, have to do more careful review" of dark pools, market making and other issues, he said at the summit.
At the same time, regulators said they are taking a hard look at investor-protection rules for equity offerings in the wake of Goldman Sachs' handling of a private placement of stock in Facebook, the red-hot online social network.
"The issue is whether investors have access to financial information about the companies of stocks they are trading to make reasonable and rational decisions," Securities and Exchange Commission Chairman Mary Schapiro said.
Wall Street giant Goldman Sachs had planned to offer both U.S. and foreign investors a chance to own shares in Facebook through private placements. But later in January, it opted to limit offerings to foreign investors.
Schapiro also said at the summit that officials are looking at possible fees for high-frequency traders to discourage rapid-fire order cancellations.
Authorities have been increasingly focused on computer-driven trading strategies in the wake of the May 6, 2010 "flash crash," which drove the Dow Jones industrial average down 700 points in minutes, only to rebound quickly.
An advisory panel to the stock market-policing SEC and its derivatives market counterpart, the Commodity Futures Trading Commission, has recommended high frequency trading fees.
The SEC has put in new trading pauses known as circuit breakers and is studying a consolidated audit trail that would keep a record of all U.S. stock trading activity to help regulators better understand and police markets.
"The fee deserves consideration," Reed said. "The audit trail is something that should be done ... The steps they took with the circuit breakers were very appropriate. The question is, do you broaden the circuit breakers to a wider band?"
MERGER WAVE RISES
An intensified focus on trading comes amid exchange mergers such as the proposed tie-up of NYSE Euronext and Deutsche Boerse, a deal that would create the world's largest financial exchange.
Deutsche Boerse's takeover of NYSE Euronext does not mean the United States is ceding the Big Board to a foreign entity, Schapiro said. "I don't believe we are losing it," she said, adding consolidation is a "natural evolution."
The SEC will review the deal, focusing on governance, ownership, and oversight. "I don't want to comment on what the commission will or (will) not ultimately do, with respect to approval, but I do think it's emblematic of how really global the securities markets have become," Schapiro said.
Combinations are also in the works between Singapore Exchange Ltd and Australian bourse operator ASX Ltd, as well as London Stock Exchange and Toronto Stock Exchange parent TMX Group Inc.
IntercontinentalExchange Inc doesn't need to jump into the global merger frenzy among exchanges with a deal of its own, and neither does Nasdaq OMX Group Inc, ICE Chief Executive Jeffrey Sprecher said at the summit.
A source said last month that Nasdaq was considering partnering with ICE or CME Group Inc to break up Deutsche Boerse's buyout of NYSE.
As the push for more market structure oversight builds, regulators are also grappling with U.S., EU and Asian reforms, some still only in the proposal stages, that came in response to the economically devastating 2007-2009 crisis.
U.S. lenders should expect recent reforms to reduce returns from their once very profitable credit card portfolios, a top MasterCard Inc executive said on Tuesday at the summit.
Chris McWilton, president of the card network's U.S. Markets, said return on assets in banks' card portfolios would likely fall to between 1.5 percent and 2.5 percent, from 3 percent to 4 percent before the crisis and new rules.
(Additional reporting by Sarah N. Lynch in Washington, Jean Yoon in Singapore, Kelvin Soh in Hong Kong, Jonathan Spicer, Maria Aspan and Paritosh Bansal in New York; Editing by Phil Berlowitz)