I just got back from vacation, the majority of which I spent in the land of my ancestors - Ireland.
One of the biggest thrills of traveling is meeting interesting, new people and learning from the experience. I had such an encounter at lunch in Dublin, a city known for the indomitable spirit of its people, but not for its cuisine. I thought I was safe ordering Irish stew - I wasn't.
Most of the lamb was so tough that I had to pick it out of my bowl. Our waitress came over to our table and asked, "So how was the stew?" I said I couldn't eat most of the meat. The waitress replied, "But other than that, how was the stew?"
She obviously missed the point - that one orders Irish stew primarily for the meat.
This experience reminds me of the present state of the securities markets. Market structure is the meat of the stew, and the money we all make is the gravy. But if the meat is inedible, the entire stew becomes unsavory.
To prevent this, our market structure should be modified. In his book "The Transformation of Wall Street," Joel Seligman, a well-respected law professor, states the following about the current self-regulatory system:
"...the greatest weakness in SEC `self-regulation' of the over-the-counter market was the risk that during periods when the Commission was led by less activist chairmen than Douglas [a respected former SEC Chairman and Supreme Court Chief Justice], or hamstrung by budget stringency, the SEC would cease to prod the NASD to discipline its members vigilantly."
The jury is still out on Chairman Arthur Levitt. Some accuse him of sleeping at the wheel during the Nasdaq market maker collusion scandal in the early '90s. But no matter what we think of Levitt, we can definitely say the SEC is hamstrung by "budget stringency."
The SEC's current budget is $341 million, yet fees paid to the SEC for trades and filing requirements brought in $1.5 billion in 1999, largely a result of the increase in online trading.
Representative Vito Fosella of New York is spearheading an effort to reduce these fees to "strike a balance" between investor protection and streamlining securities regulation.
I would argue that the $1.5 billion is a good indication of the market's activity and complexity, and these funds should be used for their designated purpose - not by politicians for general budget purposes, nor should they be reduced as a way of placating certain elements in Washington.
I would also remind the politicians not to confuse a bull market with an exemplary regulatory system. Over the past four years, I've lobbied for your rights in Washington, D.C., and I've seen firsthand how a weak SEC can hurt investment professionals and investors. The agency could certainly use more money to improve the system.
On average, SEC salaries are $12,000 to $15,000 lower than lawyers and accountants with comparable experience at the FDIC, Federal Reserve and the private sector.
Competent, qualified and happy SEC employees are the backbone of the industry's regulatory system. They ensure the SROs are following the rules but can only be effective when they have adequate resources and time to do their jobs.
Let's make sure they have both. Write your members of Congress today to let them know how you feel about this issue.
