Policing Wall Street is hard work.
The U.S. Securities and Exchange Commission, the undisputed top cop on the Street beat, has its work cut out for it. The enforcers at the SEC have to juggle what and whom they go after because, after all, they don’t have unlimited resources.
We all get that.
What I don’t get is why they drop the ball on some of the biggest schemes staring them right in the face.
Take “fair and orderly” markets for example.
They’re not always orderly, and the truth is they aren’t fair.
The folks at the SEC know this. So why have they taken so long to do so little about it?
Nothing but a Limp Reprimand
Last week, with some fanfare because it was the largest fine in such a case, the SEC came down on UBS Group AG (NYSE: UBS) for not following the rules and regulations that make markets fair and orderly – and also for not being honest to its clients.
The record fine was all of $14.4 million (not billion). Maybe that’s why you didn’t hear about it. It wasn’t newsworthy.
The SEC slapped UBS, which runs the second-largest dark pool in the country, on the wrist for violations that occurred from 2008 through 2012. During that time, UBS’s dark pool offered select market-makers and high-frequency-trading desks illegal order-types. Additionally, UBS broke promises to its own clients, who were told their dark-pool trading data would be strictly confidential.
Because the minimum increment stocks can trade is 1 cent, it is illegal to submit orders in increments of less than a penny. But that’s what UBS allowed its favored clients to do. Not everyone mind you, just select market-makers and HFT traders. That’s illegal because bidding or offering at less than a penny moves those orders up in line ahead of pending orders by others who abide by the rules.
UBS also let 103 employees access confidential trading data that dark-pool clients were promised would be strictly confidential. What’s most galling about this breach is that exposed trading data could have been used by UBS’s own trading desks to trade against its dark-pool clients.
I’m not the kind of guy to say UBS did that. But if I was, I’d sure be saying it now.
Not a lot about dark pools and high-frequency trading is newsworthy as far as the mainstream media is concerned. But it is newsworthy when it comes to trading, to exchanges, to the fabric of the capital markets.
According to a Bloomberg article about the UBS fine, “The proliferation of exchanges and dark pools has also been defended by some at the agency. Gregg Berman, the Princeton-trained physicist who runs the SEC’s analytics office, said last year that the desires of investors and investment managers entails ‘an unavoidable increase in the complexity of our markets.'”
Complexity? Really? Coming from the SEC, that’s shamefully absurd.
Markets are not complex. It’s the quote-stuffing, end-arounds and front-running that the SEC has allowed that’s complex.
What’s complex is how and why the SEC ever allowed the trading shops, market-makers, banks and brokers it sanctifies and coddles to cheat the public and hijack the exchanges and capital markets under its watch.
Remember, these are the entities the SEC is supposed to regulate.
It’s not “regulatory capture.” It’s collusion.
If the SEC regulators weren’t in bed with the harlots who screw us all, they wouldn’t be juggling all these balls – and failing. They’d be displaying a pair of brass… handcuffs… and locking these crooks up.
A $14.4 million fine? UBS probably makes that every half-hour on its HFT desk.