Ted Kaufman - United States Senator for Delaware

New York Times: Securities and Exchange Commission Action “A Victory for Senator Ted Kaufman”

January 20, 2010

Senator Kaufman has visited Afghanistan twice this year

New York Times: Securities and Exchange Commission Action “A Victory for Senator Ted Kaufman”

Be sure to check out three features from last week highlighting Ted’s work: the New York Times called a move by the SEC “a victory for Senator Ted Kaufman;” a News Journal column headlined, “Kaufman Leading the Financial Fight;” and Ted in the studio for an interview with CNBC’s Jim Cramer, who introduced Ted as “one of the smartest, most savvy legislators in Congress.”

New York Times
S.E.C. Proposes Curbs on High-Speed Trading
By Cyrus Sanati

The Securities and Exchange Commission proposed a new rule on Wednesday that would bar brokers from allowing big clients to trade directly on their platforms with the exchanges, a practice known as unfiltered or naked sponsored access. The practice has been criticized by some market analysts, as it allows traders, especially high-frequency traders, to trade almost instantly at varying market centers without any associated checks on risk.

“Unfiltered access is similar to giving your car keys to a friend who doesn’t have a license and letting him drive unaccompanied,” Mary L. Schapiro, the S.E.C.’s chairwoman, said in a statement. “Today’s proposal would require that if a broker-dealer is going to loan his keys, he must not only remain in the car, but he must also see to it that the person driving observes the rules before the car is ever put into drive.”

Broker-dealers have allowed some big clients to gain access to their market participant identifier codes, allowing them to bypass the broker and trade directly with the exchange. Under this arrangement, known as direct market access or sponsored access, the client can sometimes place an order that flows directly into the markets without first passing through the broker’s systems, which means it is not seen by regulators.

Studies estimate that 38 percent of all trading is done through sponsored access. The fear is that a trader could disrupt trading by possibly entering erroneous orders as a result of a computer malfunction or human error, failing to comply with various regulatory requirements or breaching a credit or capital limit. Traders could also be gaining a millisecond advantage over the market, putting investors that do not have the special access at a disadvantage.

The move is a victory for Senator Ted Kaufman, Democrat of Delaware, who has been pushing the S.E.C. to take a closer look at fast-evolving world of electronic trading.

“I am very pleased that the commission is ready to ask serious questions and drill down beneath the standard-issue ‘provides liquidity’ defense of high-frequency trading,” Mr. Kaufman said in a statement. “The S.E.C. needs to understand and control technology and its benefits, not permit technology to operate without regulatory understanding or access to needed data, and in doing so outrace the regulators’ ability to ensure market fairness for long-term investors.”

The S.E.C. move comes a few months after James Brigagliano, an acting director of the S.E.C. division of trading and markets, told a Senate panel that sponsored access was a serious “front-burner” issue at the commission. The S.E.C. has moved to curb other types of electronic trading by banning so-called flash orders and shining more light on alternative trading platforms known as dark pools.

The News Journal
Kaufman Leading the Financial Fight
By Harry Themal

As Congress heads for a final showdown on health care, it already knows the next debate will be on financial reform. If you think partisanship and political pressure and lobbying dominated the first half of the congressional session, you ain’t seen nothing yet as Congress seeks to put reins on the financial world.

A prominent voice in the Senate debate will be Delaware’s Ted Kaufman, who has been speaking out repeatedly and forcefully on the need for congressional legislation, federal agency enforcement and Justice Department prosecutions to control excesses and prevent their recurrence.

So concerned is Kaufman about the problems that have occurred and may well recur in the financial world that I wonder if he will change his mind about leaving the Senate seat when his term ends next January if necessary reforms have not been enacted. He insisted to me in a recent interview that he is sticking to his pledge not to seek election to the remaining four years of Joe Biden’s Senate term. He particularly loathes the idea of the massive fundraising a Democrat needs to challenge the candidacy of the popular Republican Mike Castle, who wants to move from the House to the Senate.

A lame-duck status might well be an advantage for Kaufman because he can speak out on the issues that concern him without fears of it hurting any election chances. Although he is a freshman senator, Kaufman gets his respect, back-stage smarts, and clout from his many years as Biden’s chief adviser.

In December, Kaufman chaired a Judiciary Committee oversight hearing into mortgage fraud, where he asked about criminal behavior and why there had not been any convictions. Companies like Goldman Sachs were selling mortgage-backed securities while also trading in hedge funds that those securities will lose value. A Goldman executive last week admitted that the firm offered investment advice on which it had already taken the opposite approach.

Kaufman sees some hope that bipartisanship will return during the financial debate. He has signed on to a bill sponsored by Republican John McCain of Arizona and Democrat Maria Cantwell of Washington to restore the provisions of the Glass-Steagall Act. Originally passed in 1933 as one of the measures resulting from the Great Depression, the act separated commercial and investment banking. It was repealed in 1999 with an overwhelming vote from both parties and President Clinton’s signature. Today many financial experts say that repeal helped lead to the current financial dilemma by allowing banks to invest in risky securities while obligated to preserve deposits and make loans. Kaufman says it’s as if a lawyer in a divorce case was representing both husband and wife.

The senator says it’s no wonder that the American people don’t trust financial institutions with such practices as high-frequency trading and “naked short-selling.” In the former, large trades are done in a split second and now account for 70 percent of stock volume with little transparency. In naked short selling, brokers bet the stock goes down but don’t have to hold the shares. The Securities and Exchange Commission may soon issue new rules regulating these practices. Kaufman says he has faith in the new SEC chairman, Mary Schapiro, and enforcement director Robert Khuzami, but cautions that other commission members may be slowing Schapiro’s efforts for tougher rules and crackdown.

The big Senate debate will be over the Consumer Protection Act which would regulate many aspects of the financial world. I would think that senators would be pressured to pass such legislation by an outraged public, including the many who have lost homes and jobs, and even the tea party zealots who don’t think government is protecting them. The average American will be arrayed against banking interests and many other lobbying groups who fear supervision. Kaufman will be in the thick of the fight.

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