The New Congress Appears Determined to Undermine the Integrity of the U.S. Capital Markets


The U.S. government is trying to recruit new talent with “Wall Street experience and retool antiquated surveillance systems,” according to Rachelle Younglai of Reuters. In the past the SEC and other government regulators have been unable to attract the top talent because they could not match the high salaries of top Wall Street firms. The gap between Wall Street and government regulators could become closer with the help of the Dodd-Frank reform law. However, because of a “congressional budget standoff depriving promised funding increases to the SEC and Commodity Futures Trading Commission,” their ability to better regulate the financial industry is being compromised.

According to the article, the “major victim” of the funding cuts would be an effort to regulate derivatives. These are the same unregulated derivatives that “unsettled the global financial system in 2008.” The CFTC is “pushing for a basic market surveillance system and wants an automated program to flag unusual market conditions and trader activity.” The Chairman of the CFTC, Gary Gensler said that because they are much smaller than the industry they regulate, “it’s important to fund the agency so there is an effective cop on the beat.”

The need to for new technology and flaws in the country’s market structure were made clear in May of last year when a “flash crash sent the Dow Jones Industrial Average down nearly 700 points before recovering in minutes.” It took regulators five months to determine the exact the cause of the crash partly because they were “hindered by their inability to easily see orders across all markets.”

The debate in Congress over the budget has intensified and hopefully the government’s ability to properly regulate the financial industry will not be prevented by inadequate funding.

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