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Erik Sirri and the Costs of a Politicized SEC

Posted by Larry Doyle on March 31, 2010 6:27 AM |

When the exchange of financial ideas and, more importantly, capital becomes excessively politicized there are very real costs. Although those involved in the politicization process of these markets and exchanges may define the increased intervention of political influences as “in the best interests” of all involved, the supposed near term benefits come with long term costs.

Why do I broach this topic? A former SEC official decided he wanted to talk about the political overtones involved in the SEC’s decision to restrict short-selling in the equity markets in 2008. Bloomberg reports on this bombshell in writing, SEC Lets Politics Spur Short-Sale Decision, Sirri Says:

The U.S. Securities and Exchange Commission’s decision to restrict short selling was a political decision rather than one based on evidence, according to a former agency official who says it may set a precedent for future decisions.

Commissioners who voted for curbs when a given stock falls 10 percent from the prior day’s closing price did so without proof that it would improve markets, said Erik Sirri, who ran the SEC’s division of trading and markets during the credit crisis that began in 2007.

I commend Mr. Sirri for speaking his mind at this time. I would only guess that he may catch some heat from those in Washington, both at the SEC and elsewhere, who would prefer he kept his mouth shut. I applaud him. Markets demand truth and transparency if they are ever to achieve real integrity.

Confidence in market regulation is currently abysmal. Why? Many market participants, especially retail investors, do not view the markets as operating on a level playing field. How do they respond? They take their ‘bats and balls’ along with their capital and they go home. They choose not to play. Volumes decline. Wall Street does not generate revenues. People get laid off.

Wall Street is making easy money now because the Fed Funds rate is 0-.25%, but Wall Street has always made big money off new issue equities (IPO’s, that is initial public offerings) and equity trading. Volumes in the equity markets are horrendous, despite the rebound. Do people not trust the overall market levels? No doubt. People also do not trust the market regulators. Why?

Just listen to Erik Sirri.

Politicizing the market comes with a real cost.

Market participants leave.

Now if we could only get somebody from FINRA to start talking, we may actually get somewhere.

Susan Merrill, Bob Errico . . . come on!! Talk to us. America wants to know what really was and was not going on inside FINRA.

LD

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  • phil trupp

    Collusive shorting, especially against the banks, was horrendous in late 2008. Everyone recognized this, even Chris Cox who played the role of Nero, until his hand was forced. The credit calamity was set to explode; the banks were getting killed, and it was like shooting fish in a barrel for the shorts. Those of us who favor “open markets” knew the shorting was collusive and was inflicting grave damage on investors and the economy. Someone had to step in and put a stop to the ongoing destruction. And let’s not forget the short ban was focused on the banks and was time-limited. It was a necessary move. After all, there is such a thing as emergency legislation, emergency regulation, etc., and it’s there for a reason. The meltdown might have been even more destructive without the short-term political block on shorts gone wild.






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