“If I were President, I would say “YOU”RE FIRED!”

(InvestmentNews.com) Sen. Elizabeth Warren has asked President Barack Obama to replace SEC Chairwoman Mary Jo White, despite two straight years of record-level enforcement actions by the agency.

In a letter to the president Friday morning, Ms. Warren focused on Ms. White’s “refusal to develop a political spending disclosure rule and repeated actions to undermine the agency’s mission of investor protection and the administration’s priorities.”

Ms. Warren, D-Mass., argues that the disclosure rule would increase transparency for investors by requiring companies to report political contributions.

In her letter, Ms. Warren reminded the president that he “may designate a new SEC chair at any time from among the existing SEC commissioners.”

An SEC spokeswoman declined to comment on Ms. Warren’s 12-page letter, which suggests the battle is just getting started.

“Congressional Democrats will fight to remove the recently passed rider from December’s government funding legislation, and I urge you to threaten to veto any effort to extend this corrupt policy,” Ms. Warren wrote. “But these efforts will be meaningless as long as Chair White continues to control the agenda of the SEC.”

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Even though Ms. Warren’s passion for increased regulatory oversight of the financial services industry has never been subtle, it might be missing the big picture, according to Todd Cipperman, principal at Cipperman Compliance Services.

“I think you’d have a hard time finding anyone in the investment management industry who would say Mary Jo White has been easy on the industry,” he said. “I think the industry views the SEC’s enforcement staff as being very tough, and [Ms. White] has a very significant enforcement record.”

Elizabeth Warren to SEC Chair Mary Jo White: I Want You Fired! For the full story from InvestmentNews, click here

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SEC Mary Joe White has a dream, and even if she aspires to leverage the inspirational outlook of  Dr. Martin Luther King, securities industry members are debating whether her dream could prove to be a reality any sooner than the civil rights agenda expressed by Dr. King so many years ago.  In a series of comments during the past several weeks from Chairperson White regarding the SEC’s agenda for the remainder of her tenure as President Obama’s designated SEC Chairperson, Ms. White, who is operating with only 3 of 5 Commissioners until two open vacancies are filled before the Second of Never,  she is vowing one of the top three items on her list includes “better understanding exchange-traded funds aka ETFs before the SEC approves prospectuses.” That makes sense.

One only wonders why that elementary concept had never occurred to any one previously—despite repeated calls from among others, former SEC Commissioner Steve Wallman (1994-1997) who has long questioned the approval process for many of the complex exchange-traded products the SEC has rubber-stamped, including inverse and commodities-related products that even professionals often do not understand.  Since his departure from the SEC, Wallman has proven adept at doing the right things while serving at the helm as Founder/Chairman/CEO of the investment firm Foliofn.com.

Other matters of importance according to White include “the desire on part of SEC to introduce “fiduciary definitions for registered advisers and brokers..” which in plain speaks means : White’s agenda is to figure out how to completely change the culture of the securities brokerage industry by forcing people to be ethical and moral. MarketsMuse sources have indicated White is proposing to have those folks swear an oath that says:

“My first obligation is to protect my clients’ interest above all else and to make sure I never even think of trying to sell them something that might be inappropriate for their goals or possibly even toxic—despite the fact my office manager says I have to sell house product only or I’m out of a job. After I meet that first obligation, my second obligation is to then make enough money to pay for my kids college and have enough left over for that condo in Florida.”

Insiders familiar with White’s agenda have told MarketsMuse that she has acknowledged her seemingly altruistic mission is not without challenge or headwinds given that the “securities industry at large is much like the NRA when it comes to influential prowess.”

Directly and indirectly, Wall Street firms and its executives contribute hundreds of millions of dollars every year to lobby SEC Officials and members of Congress(which the SEC reports to) on behalf of their interests—which presumably includes two big drivers that have driven the investment industry since the days of Joe Kennedy Sr.: (i) selling investment vehicles that look great on paper and in marketing collateral [even if they might or might not prove to be toxic at some point and might or might not be appropriate for a specific individual given that people’s moods change a lot] (ii) how to pay the mortgage on the brokers’ first house, the $200k for each of their kids college tuition bills, the country club memberships that provides venues in which to sell those investment products,  sharpen up the golf game, and of course, pay for the second and third homes, etc etc.

Another item on White’s laundry list is to expand the  exam program for registered brokers and advisers. Currently, 10% of the nearly 12,000 advisers sit and take ‘refresher tests’ that are abridged versions of the Series 7—an exam that has approximately 40% brokers FAIL the first time and 30% fail the second time. Some could argue the test is maybe too difficult, given the national average score is 67 vs. a passing grade of 72. Or, one could argue the barrier to entry to become a registered broker or adviser is simply being a good test taker. Idiots and Muppets can get licensed, as long as they take 8 practice exams the night before the actual exam and memorize the correct answers. So, Chairperson White wants more folks taking more tests; a good thing for the SEC because this is big a revenue-generator for the Agency—which has repeatedly claimed it does not have enough money to even pay for air conditioning in its Washington DC office. Staff members have said this alone is vexing, given that SEC examiners and enforcement agents have become accustomed to keeping windows wide open five months of the year and continuously grapple with files on their desks blowing out of their windows and many of those files pertain to complaints filed by investors and updated paper notes sent by from enforcement agents in the field via courier pigeons.

Courtesy of  an admittedly more illustrious news media outlet than MarketsMuse might be, the following is ‘official coverage from InvestmentNews.com:

To continue reading, please click here

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Finra’s CEO Richard Ketchum criticized a Department of Labor proposal to raise investment advice standards for brokers Wednesday, saying it might cause firms to curtail — or even discontinue — sales of individual retirement accounts.

Mr. Ketchum said the DOL proposal would create a bias against financial products with higher fees, even if they’re the best recommendation for a client, and that it could force firms to move to a fee-based rather than brokerage business model. He also said it’s not a good idea to regulate retirement products, such as 401(k)s and IRAs, differently than other investments.

The Securities and Exchange Commission should take the lead in drafting a fiduciary-duty rule “across all securities products,” Mr. Ketchum told reporters on the sidelines of the Financial Industry Regulatory Authority Inc’s annual conference in Washington. SEC Chairwoman Mary Jo White favors such a rule, but has acknowledged it’s not clear whether she has the support of the five-member panel to make a proposal.

To continue reading about Finra CEO Ketchum and his take on the DOL proposal and his opinion on the SEC acting on this issue first, click here.

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US regulators have moved to close a loophole that allows some high-frequency trading firms that trade equities away from regulated exchanges to operate with light supervision.

The Securities and Exchange Commission on Wednesday proposed requiring proprietary traders to become members of the Financial Industry Regulatory Authority, a markets regulator.

The change would give authorities greater oversight for the day-to-day operations and recordkeeping for many high-speed traders and electronic market makers who dominate much of trading on US equity markets.

“Today’s proposed rules would close a regulatory gap by extending oversight to a significant portion of off-exchange trading,” said SEC chair Mary Jo White.

It is the first move by the US regulator to tighten monitoring of high-speed electronic traders, which aim to profit from rapid-fire moves in the market, following intense scrutiny on the industry a year ago. Flash Boys, a book by author Michael Lewis, alleged that high-frequency traders were among the beneficiaries to a market structure that was “rigged”. That led to calls for greater oversight of HFTs and off-exchange trading which had been building as equity trading increasingly moved to venues outside the traditional exchanges.

The SEC’s proposal would amend a rule that exempts certain brokers and dealers from membership in a national securities association. The existing rule reflected practices more than two decades ago, when equity markets were dominated by floor-based exchanges which could more easily regulate all of their members’ trading activity.

That world has largely disappeared as the emergence of high-speed technology and alternative trading venueshas helped usher in a new breed of proprietary traders that dominate trading. Although some have registered as broker-dealers at Finra, such as RGM Securities, Quantlab Securities and Tradebot Systems, there are also many that have not.

To read the entire story from FT, click here

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The chairwoman of the Securities and Exchange Commission announced on Tuesday that she planned to explore setting a higher standard for brokers in dispensing investment advice, putting the agency in the middle of a potential fight between the Obama administration and the financial industry.

Speaking at a conference hosted by the Securities Industry and Financial Markets Association, one of Wall Street’s main trade groups, the chairwoman, Mary Jo White, expressed her personal support for setting up a so-called uniform standard of fiduciary duty.

Such a move would hold stockbrokers and brokerdealers to a fiduciary duty standard, under which they must put their clients’ interests ahead of their own. Registered investment advisers already fall under that higher bar, while brokers follow a looser “suitability” standard that requires them only to mind customers’ needs and appetite for financial risk.

“I believe the S.E.C. has an obligation” to create a uniform standard, Ms. White told the association’s conference.

Ms. White’s comments were her first public thoughts on the matter, coming months after the chairwoman promised to outline her position on the issue.

The S.E.C. has the authority — but no obligation — to create the new standard, thanks to a provision in the Dodd-Frank financial regulation overhaul. The Obama administration backed a similar initiative by the Labor Department to create a higher standard for brokers who oversee retirement investments.

A new standard from the commission would carry more weight, however, since it would encompass all brokers and not just those who oversee retirement accounts.

Behind the call for a tougher standard is concern that loose rules have potentially cost consumers billions of dollars each year. A memo from the White House that surfaced in January estimated that investors lost between $8 billion and $17 billion from their I.R.A.s last year because of a lack of protections.

To read the entire NYT story, please click here.

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More than half of U.S. brokerage firms surveyed by regulators said they had been targeted by email scams aimed at tricking them into wiring away client money.

In many cases, brokers fell for the impostors and their firms had to reimburse their clients. Of the brokerage firms that received the fraudulent emails, 26% reported losses of more than $5,000, according to the Securities and Exchange Commission.

The SEC last year sampled 106 firms—57 broker-dealers and 49 registered investment advisers—to assess the industry’s cybersecurity risk.

On Tuesday, the regulator said 88% of the broker-dealers and 74% of RIAs it examined for its report had experienced some form of a cyberattack. The agency didn’t say in what years the attacks occurred.

The wealth-advisory industry has long been struggling with what security experts and advisers say has been an onslaught of fraudulent wire-transfer requests, many resulting from client email accounts being hacked. Fifty-four percent of broker-dealers and 43% of RIAs said they had received fraudulent emails seeking to transfer client money.

• Fifty-four percent of broker-dealers and 43% of advisers said they had received fraudulent emails seeking to transfer client money.

For example, a former Morgan Stanley Smith Barney adviser—whose client’s email had been hacked—wired a total of $521,500 in four requests over two months last year. Also, a former Wells Fargo adviser failed to confirm two wire transfers for a total of $67,532 over two months in 2012 that turned out to be from an impostor.

The Financial Industry Regulatory Authority, Wall Street’s self-regulator, suspended and fined both advisers last month. Neither admitted or denied the allegations, and their firms fired them, according to Finra. Morgan Stanley and Wells Fargo declined to comment on the cases.

Like most firms, Morgan Stanley and Wells Fargo have strict procedures on how to thwart such scammers, but some advisers haven’t been vigilant enough to ensure the requests are actually from their clients. Of the broker-dealers that reported losses from fraudulent emails, a quarter said the losses were the result of employees not following the firms’ authentication procedures, the SEC said.

SEC chairwoman Mary Jo White says assessing the readiness of market participants and providing investors with information on how to better protect online investments from cyberthreats is an important focus of her agency.

Finra said that last year it brought 37 cases related to the improper transfer of investors’ money to third-party accounts.

“Cybersecurity threats know no boundaries,” SEC Chair Mary Jo White said in statement. “That’s why assessing the readiness of market participants and providing investors with information on how to better protect their online investment accounts from cyber threats has been and will continue to be an important focus of the SEC.”

The SEC also said it found that 58% of broker-dealers but only 21% of RIAs are insured against losses from cyberattacks. One broker-dealer and one adviser reported that they had filed claims, the SEC said.

For the full story from the WSJ, please click here

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“..The Securities and Exchange Commission is unfortunately pursuing a fundamentally flawed strategy to police the capital markets and protect investors.

Last year, SEC Chairwoman Mary Jo White disclosed she intends on pursuing a “broken windows” strategy for securities enforcement. The SEC intends on prosecuting even minor violations of the federal securities laws in order to prevent wrongdoers from engaging in even more egregious conduct.

The theory is that when a window is broken and someone fixes it, it is a sign that disorder will not be tolerated. When a broken window is not fixed, it is a signal that no one cares, and so breaking more windows, and more serious crime, will follow. This approach is the one taken in the 1990s by New York City’s then-Mayor Rudy Giuliani and Police Commissioner Bill Bratton back when Ms. White was the U.S. attorney for the Southern District of New York, which includes Manhattan.

Unfortunately, the “broken windows” strategy championed by Ms. White is fundamentally flawed. By going after minor offenses, it artificially inflates the SEC’s enforcement actions and gives the appearance of being tough on bad actors. In reality, it is a mirage.

For example, in October, the SEC commenced 34 cease-and-desist actions against public companies and their insiders, alleging violations under Sections 13 and 16 of the Securities Exchange Act of 1934, for failing to timely report information about holdings and transactions in company stock. While this action created a nice headline for the SEC and inflated its yearly statistics, it likely did little to prevent more serious violations of the federal securities laws.

Filing more cases involving smaller infractions simply does not lead to greater compliance by companies like banks and brokerage firms with thousands of employees. The flawed assumption underlying the “broken windows” approach is that the message of deterrence will be heard before violations escalate. But it is rare in white-collar crimes that someone moves gradually from skipping a few filings, the classic small case, to perpetrating significant accounting fraud, defrauding thousands of investors or an insider-trading scheme. Typically, Wall Street brokerage firms engage in large-scale violations without working their way up the ladder of criminality. So the deterrent message is less likely to be heard.

The strategy also provides cover for the SEC to avoid going after the big banks and brokerage firms that are responsible for most of the serious securities fraud-related carnage. The level of financial chicanery engaged in by banks and brokerage firms leading up to the 2008 market crash was extraordinary. Virtually every major bank and financial company on Wall Street engaged in criminal scandals that impoverished millions and collectively destroyed hundreds of billions, in fact, trillions of dollars of the world’s wealth —and nobody went to jail. The SEC’s passive approach to punishing banks and brokerage firms that engaged in this activity led to blistering criticism that the SEC was simply too soft on major market players. An unwillingness to go after the large corporations that engage in most of the serious misconduct cannot be hidden under an avalanche of small actions against fringe wrongdoers.

Even current SEC Commissioner Michael S. Piwowar took aim at the strategy in a speech Oct. 14 when he stated, “A “broken windows’ approach to enforcement may not achieve the desired result.” He argued the idea was flawed because the ultimate goal of regulation is to achieve resilient markets, not regulatory compliance. “If you create an environment in which regulatory compliance is the most important objective for market participants, then we will have lost sight of the underlying purpose for having regulation in the first place,” Mr. Piwowar said.

For the full article from P&I, please click here

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According to the Scott Patterson in his WSJ weekend journal column,  :

European Pressphoto Agency

“…To even the playing field, Ms. White suggested requiring public dissemination of the best buy and sell orders generated on private electronic networks for corporate and municipal bonds that are accessed primarily by market insiders.

Currently, investors typically see prices only after a trade is executed.

“This potentially transformative change would broaden access to pricing information that today is available only to select parties,” Ms. White said in a speech at the Economic Club in New York.

The effort comes amid a broader push by Ms. White to erode some of the trading advantages enjoyed by certain large traders that aren’t available to most rank-and-file investors. In a speech two weeks ago, Ms. White vowed to ratchet up oversight of computer-driven trading, a push that could ultimately dull the edge such high-speed traders enjoy.

The bond market initiatives, while still in the planning stage, could deliver a blow to big Wall Street banks that dominate bond trading, while benefiting regular investors who have largely been shut out of the inner workings of the bond market, observers said. Wall Street’s fixed-income businesses already are being buffeted by new rules on capital and risk-taking, and a drop in client trading.

Fund managers who invest in corporate and municipal debt would be among the biggest beneficiaries of the move, because they would have a better idea about how much supply and demand existed in the market for bonds they want to trade…”

For the full story from the WSJ, please click here

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