Ted Kaufman - United States Senator for Delaware

Ted`s Exclusive Interview with Steve Forbes

February 2, 2010

 

 

Ted recently sat down with Steve Forbes for a wide-ranging discussion of his efforts to hold Wall Street accountable and bring about needed systemic change.

Check out the entire "Intelligent Investing" interview package on Forbes.com

 

Watch Ted's Exclusive Interview with Steve Forbes

 

 

Read the full interview transcript here

 

 

FORBES

Intelligent Investing

The Short-Time Senator

By Alexandra Zendrian

 

 

 

Ted Kaufman has said he will only have one term serving Delaware as senator. Free from the political and financial pressures of having to mount a campaign he's been able to take on some of Wall Street's most powerful interests, including NYSE Euronext, Nasdaq OMX Group and big investment banks like Goldman Sachs Citigroup and Bank of America.
 
"I'm not carrying a pitchfork or leading a mob; I'm not even running for election," Kaufman said in a letter to the editor April 13, 2009, adding, "I simply want to use my two years in the Senate to stand up for free and fair U.S. securities markets."
 
At issue: dark pools where big investors can engage in private transactions that the rest of the market only learns about after the fact, and high-frequency trading that favors big players over small ones. He's also taken on an American law enforcement apparatus that prosecuted fewer financial crimes in 2008 than in 2003.
 
"People know that if they rob a bank, they will go to jail. Bankers should know that if they rob people, they will go to jail too," says the senator, who was appointed to fill the seat left vacant by Vice President Joe Biden.
 
Kaufman's first triumph was the Fraud Enforcement Recovery Act, which has assigned more FBI agents to financial fraud cases. These agents were moved to counter-terrorism investigations after the Sept. 11 terrorist attacks-- switch in priorities that cut into financial crime prosecution throughout the last decade.
 
He's met more resistance on dark pools and high-frequency trading. High-frequency trading makes up more than 60% of the trading done in the markets, according to a recent Aite Group report. There has been banter that high-frequency trading could lead to retail investors getting their orders front-run by someone with more sophisticated technology.
 
"Under the current system, until empirical data shows up to dispel our concerns, we have little reason to believe average investors can compete with the high-speed traders they are up against," Kaufman said on the Senate floor Sept. 14, 2009.
 
Kaufman is looking for more information on areas of the market since technology and other innovations that have grown rapidly with little study or consideration by regulators.
 
"Banning flash orders and imposing limits on dark pools should not be the end of the story, nor should they be seen as sacrificial lambs offered up by a substantial majority of Wall Street players as the price to ward off deeper review," he wrote in a New York Times op-ed.
 
Kaufman's interest in trading is rooted in the health of initial public offerings in the market. A recent Grant Thornton report by David Weild notes that at least 360 IPOs are needed to keep the number of listings steady; that number hasn't been reached since 2000. (See "No IPOs Means No Jobs.") The crippling of the IPO markets means that small businesses are losing ways to gain funding to, among other things, hire people.
 
"How can we create a market structure that works for a $25 million IPO--both in the offering and the secondary aftermarket?" Kaufman asked in speech on the Senate floor on Dec. 16, 2009. "If we can answer that question, this country is back in business."
 
Kaufman is working to restore the uptick rule, which has been used to abate short-selling. The uptick rule was in place from the 1930s until 2007. Kaufman says that though he supports the uptick rule being restored, strict pre-borrow requirements are needed to address short-selling. Pre-borrow requirements would mean that shares about to be used for short-selling would have to be flagged or otherwise set aside for each user, which would eliminate naked-short-selling.
 
Many people have called for the uptick rule to be reinstated and for an end to naked-short-selling. But despite the public outcry for these things, no concrete rule has been put in place in these areas. Kaufman has been frustrated by the lack of action in this area by the Securities and Exchange Commission. But he notes that the SEC has several steep hurdles to climb, not the least of which are unwilling participants.
 
"Why is it so difficult for the SEC to mandate some version of the uptick rule or impose 'hard locate' requirements to stop naked-short-selling? Then it became clear: None of the high-frequency traders who dominate the market want to reprogram their computer algorithms to wait for an uptick in price or to obtain a 'hard locate' of available underlying shares," he said while testifying at a banking subcommittee hearing on market structure issues Oct. 28, 2009.

If you need help dealing with a federal agency, please contact one of my Delaware offices or visit the Services for Delawareans page to learn more about how I can assist you. My staff and I will respond as quickly as possible. WILMINGTON
1105 N. Market St.
Suite 2000
Wilmington, DE 19801-1233
tel: (302) 573-6345
fax: (302) 573-6351
MILFORD
24 NW Front St.
Windsor Building Suite 101
Milford, DE 19963
tel: (302) 424-8090
fax: (302) 424-8098
WASHINGTON D.C.
383 Russell
Senate Office Building
Washington, D.C. 20510
tel: (202) 224-5042
fax: (202) 228-3075

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