News Journal: A Delawarean is doing great things in the Trump administration

Ronald Reagan loved telling a story about an eternally optimistic boy confronted with a huge pile of (let’s call them) problems. The punch line was “there must be a pony in here somewhere.”
Google that if you are too young to remember the story.
I’ve been an optimist all my life, but it has been hard to find a pony in the huge pile of (let’s call them) problems created by the Trump presidency. Well, I’m delighted to say I’ve found one in an unlikely place — the Security Exchange Commission. What’s more, the hero there is a Delawarean born and bred.
Brett Redfearn, head of the SEC’s Trading and Marketing Division, is doing a number of things that will help bring greater fairness to our securities markets.
He was appointed to his position by the new chair of the SEC, Jay Clayton. I opposed Clayton’s nomination, despite the fact that he was a partner in Sullivan and Cromwell, a law firm I hold in high regard. My concern was that his number one client was Goldman Sachs.
With some notable exceptions, such as Gary Gensler who was a terrific head of the Commodity Futures Trading Commission, I haven’t been impressed over the years with Goldman alumni in government. Many of them, it seemed to me, used their positions to further the interests of Goldman and the other Wall Street banks over those of American taxpayers.
I began to think I was wrong about Clayton when he hired Redfearn, who had given excellent testimony before the SEC’s Equity Market Structure Advisory Committee while I was a member of that committee.
Redfearn is heading in the right direction. He is working to assure that our stock markets have a lot more transparency and lot less complexity for complexity’s sake. His clear objective is a return to the fairness and transparency that once made American securities markets the envy of the world.
The first indication that there was a new sheriff in town — and that he cared about investors — was on March 14, when the SEC approved a pilot study with the incomprehensible title of “Transaction Fee Pilot for NMS Stocks.” Clayton explained it as: “The proposed pilot is designed to generate data that will provide the Commission, market participants, and the public with information to facilitate an informed, data-driven discussion about transaction fees and rebates and their impact on order routing behavior, execution quality, and market quality in general.”

It has been clear to objective observers for some time that conflicts of interest were rampant among those involved in the buying and selling of investors’ stocks. By offering special transaction fees and
rebates, the for-profit exchanges have created massive conflicts in the search for the best possible price for the investor.
If the pilot study leads to new regulations that will eliminate such conflicts, it will be a huge win for individual investors.
Just one week later, Redearn sent a clear warning about the growth of the crypto currency-trading marketplace. To most of us, that means the “bitcoin” market, which Redfearn said resembles the “wild west.” “In a universe where new assets are coming to markets,” he said, “there is fear of missing out, and there are people throwing money on top of money. There is a significant risk of fraud.”
Listing concerns such as market manipulation, theft, cybersecurity, terrorist financing and money laundering, he called for bringing the crypto currency markets under the same best execution and regulatory rules that have governed stock markets.
There are reports that the SEC is also finally beginning to address two concerns the agency had previously warned about but done little to fix. They are going to seriously investigate the operation of Alternative Trading Systems, including so-called “dark pools.” The evidence of improper use of dark pools has been growing for quite a while, and reform is long overdue.
They are also promising to do something about rules proposed in 2016 that would require so-called “broker-dealers” to disclose more information to investors on how their orders were being handled. Mary Jo White, the SEC Chair at the time, said, “These proposed rules are intended to bring order handling disclosure in line with modern technology and market practice, providing valuable information to retail and institutional investors about how their orders are treated.
This information should provide investors more transparency and a powerful new tool to more effectively monitor broker-dealer routing decisions.”
If all of these things happen, we’ll all have found a very welcome pony in an otherwise miserable pile. Because Clayton and Redfearn may put the SEC back in the business of living up to its mission statement: “to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.”
Ted Kaufman is a former U.S. senator from Delaware.

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