Please read the following carefully. It's rewarding in that it concisely states most of the issues we have been discussing here for years. Yes, we have gone from being the subject of ridicule as tin foil wearing nutjobs to headlines and Congressional hearings. Congratulate yourselves and throw it in the face of those who have tried to slow down this train of reform.
Kaufman Demands Level Playing Field for Investors
Says we have unequal markets, which the SEC must restore: “Protecting investors is too important to the nation, to the integrity of our financial markets, and to our economic recovery.”
July 28, 2009
WASHINGTON, DC - U.S. Sen. Ted Kaufman (D-DE) went to the Senate floor today to implore the Securities and Exchange Commission (SEC) to address a range of issues that include "flash orders," naked short selling and the "uptick rule" in his continued effort to restore investor confidence in the stock markets.
"We have an unfair playing field that leaves us with, in effect, two markets: one for powerful insiders and another for the average investor," said Sen. Kaufman. "One market for huge volume, high-speed players, who can take advantage of every loophole for profit, and another market for retail investors, who must play by the rules and whose orders are filled without any special priority. This situation simply cannot continue. It is the financial equivalent of ‘separate and unequal.'"
"To use a baseball metaphor, flash orders allow some batters to pay to see the catcher's signals to the pitcher, while the rest of us don't see them," Sen. Kaufman continued. "Markets that permit a privileged few to have special access to information cannot maintain their credibility."
Excerpts from his speech today:
Flash orders, the uptick rule, and naked short selling are not just a list of complaints, I believe they are interconnected. They are interconnected by an unsupported faith in the religion of self-regulation and liquidity. That religion believes that no price is too high for deeper liquidity - maximizing the volume and frequency of transactions -- because it reveals the greatest amount of information about stock values. And there is one more article of faith - that innovation by market players is always beneficial.
Since I began speaking out against naked short selling, I have heard from some of the biggest companies in America, who are concerned about the effects of naked short selling. But they do not want to speak out, because they fear that any hint of vulnerability they admit even privately to public officials will leak out and make them the target of predatory raiders.
I have also heard from investors around the country. They have complained that large broker-dealers are somehow permitted to trade ahead of most investors. These average and even sophisticated investors relate that, in their experience, they never seem to be able to execute trades at the best available published bid or asking price. They complain that large orders always seem to get a priority over their smaller orders. Until now, I never really knew what to make of these claims.
In the New York Times this past Friday, on investor blogs for weeks now, and in a comment letter filed by the New York Stock Exchange on May 28, commentators have begun to explain how flash orders work to - quite literally - "pick the pockets" of the average investor. In essence, these traders get a very quick look at all pending orders in advance and, through technology, can trade ahead of those orders.
I call again for the SEC to act quickly to protect investors in four critical areas.
First, we need to implement a rule that provides the substantive protections removed when the Uptick Rule was rescinded in 2007.
Second, the SEC must end naked short selling: no one should be able to short a stock unless they have located specified shares of stock and obtained a contractual claim to borrow the stock in time for delivery. The SEC's announcement yesterday of plans for more discussion does not accomplish this. We need concrete action soon by the SEC.
Third, the SEC must prohibit the use of flash orders: no one should be permitted to use information asymmetry that permits high-speed computer trading to have an advantage over average investors.
Finally, the SEC should establish disclosure and transparency equality: the disclosure requirements that apply to pooled funds worth greater than $100 million should apply uniformly to all, including hedge funds, for both long and short positions. And the level of transparency for order flows should be the same for all.
In closing, I implore the SEC once again to act urgently to fulfill its core mission: protecting investors. The reason protecting investors is so important is that by doing so the SEC ensures the credibility of the financial markets. If the SEC refuses to restore a level playing field, to rebuild investor confidence in our markets, then we in Congress will have to step in and do it ourselves. Protecting investors is too important to the nation, to the integrity of our financial markets, and to our economic recovery.
Link to PR and full text:
kaufman.senate.gov |
