This page has been archived and commenting is disabled.

Why The SEC Is Irreperably Conflicted On The Issue Of High Frequency Trading

Tyler Durden's picture




 

Dear Senator Kaufman, we at Zero Hedge applaud your effort to bring transparency to, and evaluate the various new forces that, for better or worse, determine the modern market landscape. However, we would like to bring to your attention a fact which renders your entire approach of seeking fair and unbiased commentary from the SEC irrevocably moot. The reason is that the SEC, in alignment with many of the very industry players who may be abusing market structure for their own tiered benefit, stands to benefit significantly from an increased amount of daytrading volume across all markets, and, in fact, based on actions as recent as 4 months ago by the SEC, the regulator is well aware of the monetary benefits that ever-increasing churn creates for the commission and is fully intent on capitalizing on them. We thus suggest you bypass any protocol that has an SEC intermediation and go directly to penning a Bill which, we trust, will prove to be more fair and objective than anything the SEC would ever provide you with. The reason for the SEC's insurmountable conflict of interest is the so-called Section 31.

Section 31

As Mary Schapiro has often noted, the SEC is "woefully" underfunded, regardless that for its $900 million FY 2009 budget, which comes to over $250,000 per commission worker, the agency has terminally underperformed and has been the object of repeated and justified public ridicule due to its countless lapses, backward looking methodology and overall lack of "regulating" any improprieties in the market. A fresh example of the SEC's pathological incapacity to uncover malfeasance on its own (and, what's potentially worse - pandering cronyism), is its reliance on media sources such as the recent Wall Street Journal article highlighting potential client-abusive practices at none other than Goldman Sachs.

Yet for all its complaining about being underfunded (and one can argue for hours about whether there even is a need for an agency to exist whose primary purpose these days it seems, in the words of Judge Jed Rakoff, is to "curry favor" with various prominent TARP recipients) the SEC is well aware that it needs to be self-sufficient in order to exist. Enter Section 31.

From the definition of Section 31

When you sell a stock, you may have noticed that a small transaction fee, often just a few pennies, appears on your confirmation slip. Although some broker-dealers have described this charge as an "SEC Fee," the SEC does not actually impose this fee on individual investors.

The SEC does not impose or set any of the brokerage fees that investors must pay. Instead, under Section 31 of the Securities Exchange Act of 1934, self-regulatory organizations (SROs) -- such as the Financial Industry Regulatory Authority (FINRA) and all of the national securities exchanges (including the New York Stock Exchange and the American Stock Exchange) -- must pay transaction fees to the SEC based on the volume of securities that are sold on their markets. These fees recover the costs incurred by the government, including the SEC, for supervising and regulating the securities markets and securities professionals.

The SROs have adopted rules that require their broker-dealer members to pay their fair share of these fees. Broker-dealers, in turn, pass the responsibility of paying the fees to their customers. Thus, a broker-dealer that has questions about how its fees are calculated should contact its SRO, and a customer who has questions about how his or her fees are calculated should contact the broker-dealer.

Section 31 requires the SEC to make annual and, in some cases, mid-year adjustments to the fee rate. These adjustments are necessary to make the SEC's total collection of transaction fees in a given year as close as possible to the amount stipulated for that year by Section 31. If transaction volume in a given year increases, the SEC will lower the fee rate because each transaction has to contribute less to the target collection amount. But if transaction volume falls, each transaction will have to be charged a higher fee in order for the SEC to collect the target amount required by Section 31.  To find the current rate for Section 31 transaction fees, please visit the Division of Market Regulation’s Frequently Requested Documents webpage, and click on the most recent Fee Rate Advisory under “Section 31 Fees.” You’ll also find Fee Rate Advisories in the Press Releases section of our website. For official Commission Orders concerning fee rate adjustments, please visit the Other Commission Orders, Notices, and Information section of our website.

The charges on most securities transactions are known as Section 31 "fees." But the charges imposed by Section 31 on transactions in security futures are termed "assessments." As of fiscal year 2007, the assessment charged is $0.0042 for each round turn transaction (i.e., one purchase and one sale of a contract of sale for future delivery).

Now Section 31 fees are nothing new. However, a recent quiet amendment that slipped under the radar indicates just why the SEC sees HFT as the money cow it is, for a select group of investors, and for the Securities and Exchange Commission itself.

On March 4, 2009, the SEC issued a Fee Rate Advisory #3 for Fiscal Year 2009. The jist of the advisory is the following:

Washington, D.C., March 4, 2009 — Effective on April 1, 2009, or 30 days after the date of enactment of the Commission's regular appropriation for FY 2009, whichever is later, the Section 31 fee rate applicable to securities transactions on the exchanges and over-the-counter markets will increase to $25.70 per million dollars. Until that date, the current rate of $5.60 per million dollars will remain in effect. The Section 31 assessment on security futures transactions will remain unchanged at $0.0042 per round turn transaction.

Time for a little math.

Using the same back of the envelope analysis we did when we evaluted the cost of high frequency trading, and focusing exclusively on exchange traded stocks (and for the purpose of simplicity ignoring OTC transactions and other OTC products), we postulate 6 billion shares traded daily at a $20 average price for 250 trading days per year. Applying the old fee of $5.60 per million dollars results in an annual revenue stream of $168 million to the SEC. Applying the new fee of $25.70 per million dollars, and the SEC now would receive $750 million dollars- three quarters of a billion, and more than 80% of the SEC's annual budget. And keep in mind we did not include all other various exchange traded and OTC products that the SEC collects fees on. Did the SEC specifically request the fee increase in March as it became aware of the potential windfall that HFT driven churn, pardon, liquidity provisioning, could be for the Commission?

Now Senator Kaufman, you obviously realize, in referencing your letter to the SEC, that High Frequency Trading in its various forms now accounts for well over half of total volume in domestic and international markets. An objective analysis of HFT, as you have demanded of Ms. Schapiro, could have one of two outcomes: a favorable one, and an unfavorable one. Assuming a hypothetical outcome is indeed, unfavorable, it would have dramatic repercussions not only on the market landscape, but on overall market transaction volume, potentially impacting it to the tune of the estimated 70% of volume that HFT accounts for.

At this point it bears pointing out the flagrant conflict of interest that the SEC is faced with. An objective, unbiased and impartial analysis of HFT would leave the "cash strapped" Commission exposed to losing up to 70% of this primary revenue stream. Using the conservative estimate above, do you, Senator Kaufman, realistically believe, that Ms. Schapiro and her assistants would be able or willing to provide unbiased data on information that could impair over half a billion worth of annual revenue for the SEC.

We think not. As would no other rational human being.

Which is why, while we applaud your effort for a data mining mission with the SEC, the results ultimately presented to you by Ms. Schapiro will be highly conflicted, irrelevant and moot. We hope and are confident that you have a contingency plan for this situation, which is nothing less than one in which conflicts of interest will play the primary role in shaping the data mining and presentation.

And, as an aside, this example merely goes to show just what a cash cow HFT has become not just for governmental agencies but by implication, the key market players, as it is no secret that the government is always most willing to extract its tithe out of industries that are significant cash cows in their private sector context and would not be impaired by such comparable "fee increases." We hope you manage to read between the lines in any and all interactions you have with proponents and regulators of HFT. Yet we are confident that you do, based on your admirable dedication to your noble cause to date.

 

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Fri, 08/28/2009 - 19:59 | 52430 Anonymous
Anonymous's picture

the sec is irreparably conflicted over telling the truth
and enforcing the law.....

Sat, 08/29/2009 - 10:19 | 52794 Trader Joe
Trader Joe's picture

Let's not forget who the first SEC commish was....none other than Joe P. Kennedy.

 

Kennedy made a large fortune as a stock market and commodity investor and by investing in real estate and a wide range of industries. He never built a significant business from scratch, but his timing as both buyer and seller was usually excellent. Sometimes he made use of inside information in ways which would later be made illegal, but regulations were lighter in his era. He later became the Chairman of the SEC. When Fortune magazine published its first list of the richest people in the United States in 1957 it placed him in the $200–400 million band, meaning that it estimated him to be between the ninth and sixteenth richest person in the United States at that time.

 


______

Roosevelt rewarded him with an appointment as the inaugural Chairman of the U.S. Securities and Exchange Commission (SEC). Kennedy had hoped for a Cabinet post, such as Treasury. After Franklin Roosevelt called Joe to Washington to clean up the Securities and Exchange Commission, somebody asked F.D.R. why he had tapped such a crook. "Takes one to catch one," replied Roosevelt.[7]

Kennedy's reforming work as SEC Chairman was widely praised on all sides, as investors realized the SEC was protecting their interests. His knowledge of the financial markets equipped him to identify areas requiring the attention of regulators. One of the crucial reforms was the requirement for companies to regularly file financial statements with the SEC, which broke what some saw as an information monopoly maintained by the Morgan banking family. He left the SEC in 1935 to take over the Maritime Commission, which built on his wartime experience in running a major shipyard.

  http://en.wikipedia.org/wiki/Joseph_P._Kennedy,_Sr.

 

 

 

 

 

Sat, 08/29/2009 - 11:13 | 52833 Anonymous
Anonymous's picture

You're "framing" the context to meet your personal bias.

What about Landis and Douglas? Do you even know who these guys were and what role they played in SEC's history?

"...under Landis we were taught how to get things done. And we're now going to go ahead and get them done." - Douglas

The bias of commentators on this website is so wingnut.

Here, go learn some history:
http://www.fuqua.duke.edu/conference/dei/nyse/docs/CAUTIOUS_EVOLUTION_OR...

Sun, 08/30/2009 - 13:51 | 53137 m3c (not verified)
m3c's picture

I have seen the evolution of honest liquidity providing strategies morph into a manipulative science.

good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions

Sat, 08/29/2009 - 11:03 | 52828 handsfree
handsfree's picture

no kidding

Fri, 08/28/2009 - 19:59 | 52431 phaesed
phaesed's picture

Bravo.

Fri, 08/28/2009 - 20:02 | 52434 Sqworl
Sqworl's picture

+ 750M  TD..nailed it...out of the beltway!

Fri, 08/28/2009 - 20:04 | 52437 Anonymous
Anonymous's picture

the SEC is a joke. a complete joke.

Sat, 08/29/2009 - 09:31 | 52783 topshelfstuff
topshelfstuff's picture

too dark to be a joke, actually the stuff i'll post here was found after doing some googling after reading a post asking who the new SEC Head, Shapiro, was, and who first appointed her. i'm a bit shocked that this new Admin would let the puppet strings show so early, and appoint yet another puppet. this is a lot to post, but you can just scan over and do some research 'cause there's so much more, and btw, you can use either Shapiro or Schapiro, she is listed under both. as best i could find from the scant info on here early life, i believe one is her maiden name. Her appointments began with Reagan and continues with every Pres since Excuse the length. I knew none of this before i began the search, pastes below:

 

http://en.wikipedia.org/wiki/Mary_Schapiro

http://www.rightpundits.com/?p=2828

As head of the Financial Industry Regulatory Authority, it is charged that Mary Shapiro led a “very corrupt,” and incompetent organization, which failed under her leadership to protect investors from predatory money managers. See a video below discussing Shapiro’s failures.

Her reward? Promotion to SEC Chief by Barack Obama, the very organization she failed to oversee.

 

Money Manager and former NASDAQ Chairman, Bernard Madoff, was arrested in December 2008 for stealing millions from his investor clients in what is considered the biggest pyramid scheme (Ponzi scheme) ever with estimated losses to his clients of $50 billion.

Whistleblower, Harry Markopolos tried for a decade to get the SEC to stop Madoff’s operation. According to Markopolos, the SEC refused to take on an influential Wall-Streeter like Madoff.

What you’ll see is the SEC is busy protecting the big financial predators from investors, and that’s their modus operandi right now.”

Markopolos and high-level SEC officials both testified at the U.S. House Financial Services subcommittee yesterday. Subcommittee Chair, Representative Paul Kanjorski (D-PA) accused the SEC officials of “impeding” the Madoff investigation by refusing to talk because the case is under investigation.

The “officials” said the SEC is looking at “possible” changes, with “more frequent examinations” of fund managers and investment advisers.

Harry Markopolos is a securities industry executive and fraud investigator, but no one wanted to examine what this fraud investigation revealed. He alerted the SEC in agency offices in Boston, Washington and New York - all to no avail. The regulators never acted. Bloomberg News reports that Markopolos feared retribution from Madoff and feared for his life and the safety of his family during the nine years he followed and reported on Madoff.

http://crooksandliars.com/john-amato/mary-shapiro-take-over-sec

Thu, 12/18/2008

"Prior to assuming the CFTC chairmanship, Ms. Schapiro served for six years as a Commissioner of the Securities and Exchange Commission. She was appointed in 1988 by President Reagan, reappointed by President Bush in 1989 and named Acting Chairman by President Clinton in 1993.

In January 2008, Ms. Schapiro was appointed by President George W. Bush to the President's Advisory Council on Financial Literacy, a 19-member council formed to promote and enhance financial literacy among Americans. She is also an active member of the International Organization of Securities Commissions (IOSCO) and was Chairman of the IOSCO SRO Consultative Committee from 2002 until 2006.

A 1977 graduate of Franklin and Marshall College in Lancaster, PA, Ms. Schapiro earned a Juris Doctor degree (with honors) from George Washington University in 1980. She is a member of the Board of Trustees of Franklin and Marshall College. She is also a member of the Boards of Directors of Duke Energy and Kraft Foods. Ms. Schapiro was named the Financial Women's Association Public Sector Woman of the Year in 2000. In 2008, she received a Visionary Award from the National Council on Economic Education (NCEE), honoring her as a "champion of economic empowerment." Ms. Schapiro serves on the RAND Corporation's LRN-RAND Center of Corporate Ethics, Law and Governance Advisory Board."

I have a very bad feeling about this.

Thu, 12/18/2008

http://www.finra.org/AboutFINRA/Leadership/p0...

Snip - Mary L. Schapiro is CEO of the Financial Industry Regulatory Authority (FINRA), the largest non-governmental regulator for all securities firms doing business with the U.S. public. Ms. Schapiro also serves as Chairman of the FINRA Investor Education Foundation, the largest foundation in the U.S. dedicated to investor education.

Amended: She was appointed by President Clinton in 1994. The CFTC is responsible for regulating the US futures markets, including financial, agricultural and energy markets. As Chairman, she participated in the President's Working Group on Financial Markets with the Secretary of the Treasury and the Chairmen of the Federal Reserve Board and the SEC. -- "Plunge Protection Team" + The Group was established explicitly in response to events in the financial markets surrounding October 19, 1987 ("Black Monday") to give recommendations for legislative and private sector solutions for "enhancing the integrity, efficiency, orderliness, and competitiveness of [United States] financial markets and maintaining investor confidence". She is not a novice, that's for sure. The FINRA is, and was, responsible for monitoring Bear Stearns, Goldman Sachs, Lehman Brothers, et al. How is it that Mary Shapiro gets rewarded and Chris Cox gets the shoe?


Shapiro responsible for Madoff

Wed, 02/04/2009 - 12:41

The New head of the SEC is responsible for the Madoff fraud. Mary Shapiro has been the CEO of the NASD and FINRA for the last 13 Years. It is those two regulatory firms to oversee all broker dealers to make sure investors are not being swindled. THIRTEEN YEARS! If she had been doing her job instead of sitting on the Board of Kraft and Duke Energy maybe some of the people who lost their life savings would have been spared. SHE SHOULD BE THE NEXT TO GO. BTW she will receive between $5-$25 Million from Finra on her exit (what did Obama say about "shameful bonuses") she also made millions sitting on boards and as CEO of Finra. In the SEC filings against Madoff the SEC said; [T]he SEC has alleged that Madoff and the broker-dealer, operated a Ponzi scheme, and violated the federal securities laws. They have shut down the broker-dealer because of this alleged fraud. The SEC has also alleged, quoting from their court papers in support of an injunction - "[t]hrough the investment adviser services of BMIS [Madoff's broker-dealer] Madoff has conducted a ponzi-scheme, whereby he has false [sic] represented to investors that returns were being earned on their accounts at BMIS..."

That alleged conduct is directly under FINRA's jurisdiction. FINRA is the primary regulator for the broker-dealer. FINRA is responsible for oversight of its account statements, which the SEC alleges were fraudulent. FINRA is also responsible for reviewing the firm's financial statements. If the customer account statements were fraudulent, the firm's financials were fraudulent, since they incorporate financial information from the customer accounts. In order to produce fraudulent account statements, the firm's back office and clearing operations had fraudulent information.

SHE IS NOW RUNNING THE SEC!!!!!

In July 1990, then-SEC Commissioner Schapiro was appointed chairman of the Task Force on Administrative Proceedings. The Task Force revised the entire Rules of Practice, and in March 1993 issued its final report, Fair and Efficient Administrative Proceedings. In November 1993, an SEC release solicited comment on the Task Force proposals, some of which were later adopted as SEC guidelines [6] on June 9, 1995.

In October 1993, Schapiro gave a speech in Lugano, Switzerland, "The Derivatives Revolution and the World Financial System," concerning potential regulation of the unregulated derivatives market in which she cited "the benefits to financial innovation that may result from a more flexible regulatory paradigm," and stated that she was "not convinced that consolidated regulatory supervision of securities firms and their affiliates is necessary or appropriate at this time."

http://cody.blogs.foxbusiness.com/2009/02/25/mary-shapiro-either-a-tool-or-a-leader-of-the-illuminati-be-and-she-needs-to-be-fired-in-disgrace/

Case in point -- how about all these buddies, cronies and otherwise less-than-arms-lengths dealings amongst the guys who apparently were running out and out frauds and/or ponzi schemes and the non-elected bureaucrats who were supposed to be regulating them. And more to the point, as I'll highlight later -- remember that these same folks are BEING PROMOTED right now under the latest Republican/Democrat Socialist Regime in power.

First up, we broke this story on Happy Hour last week when we had Congressman Dennis Kucinich on talking about his probe to find out why FINRA "stood down" on their investigation of Stanford a few years ago --

Yeah, that's right, Stanford had not one but two moles inside the FINRA.

And do you remember who was mentioned up above as running FINRA when it decided not to punish and/or shut down Stanford for its crimes other than a fine of about $10,000? Mary Schapiro, that's who. Sounds like someone who should be fired in disgrace, no?

As a bonus kicker, of course, she ran the NASDAQ where that bigger, more infamous Bernie Madoff character became chairman.

===================

http://www.huffingtonpost.com/dan-solin/sec-overhaul----dump-mary_b_207027.html

The Obama administration is missing the forest for the trees as it focuses on regulatory overhaul of the SEC. While giving the Federal Reserve the power to supervise large financial firms is a step in the right direction, the real problem is Mary Schapiro, the newly appointed Chairman of the SEC.

Ms. Schapiro has spent her career protecting brokerage firms from investors, and thwarting efforts to reform a thoroughly corrupt securities industry.

Ms. Schapiro joined the NASD in 1996 as President of NASD Regulation. She was named its Chairman and CEO in 2006, and remained in that position until her appointment to her present position. In 2007, she led the effort to consolidate the NASD and the NYSE into FINRA. FINRA, like its predecessors, purports to "self regulate" brokerage firms.

During her tenure as the NASD, Ms. Schapiro was a strong advocate of the industry's mandatory arbitration system which routinely re-victimizes investors by denying them redress for broker misconduct.

"Self-regulation" overseen by Ms. Schapiro resulted in the greatest abuses by brokerage firms in history, bringing the world's economies to the brink of total collapse.

Ms. Schapiro's shaky start at the SEC confirms the view that she will do nothing to reign in the insatiable greed of brokers, who continue to plunder the savings of hapless investors.

The irony is that it would be so simple to demonstrate a real commitment to investor rights.

Everyone in the industry knows that Mary Shapiro is owned by the brokerage firms. They are the root of the problem
. They make crappy, high commission products and sell them to investors. There are tons of conflicts of interest.
Her mission is to protect the big brokerage houses from investors and independent firms. Some of her first actions at SEC were to go after small independents at the behest of the big firms. When the big firms are busted she slaps them with a small fine and lets them go on their way.
Where was she when Madoff went down? I bet she was on his rolodex. Madoff was a big brokerage firm that invented its own brokerage statements. Custody and statements did not match. This should not have been hard to catch. Where are the prosecutions? We all know Maddoff is protecting others.
We need a Spitzer type at SEC to give us a conga line of perps.
We cannot reform the business from within. Mary Shapiro must go!!

Sat, 08/29/2009 - 15:32 | 52904 Miles Kendig
Miles Kendig's picture

Was this a contributors article?

Fri, 08/28/2009 - 20:06 | 52438 D.O.D.
D.O.D.'s picture

Now that's what I call; Bringin' the Thunder!

Fri, 08/28/2009 - 20:16 | 52445 Anonymous
Anonymous's picture

The sound you don't hear is the usual squealing that accompanies any attempt to dip the gummint paw into the honeypot. That's a dead giveaway how very much honey there is.

Sun, 08/30/2009 - 13:51 | 53143 m3c (not verified)
Fri, 08/28/2009 - 20:17 | 52447 pigpen
pigpen's picture

Bravissimo

Fri, 08/28/2009 - 20:20 | 52450 deadhead
deadhead's picture

Excellent piece of work ZH.  Excellent. Thank you.

Fri, 08/28/2009 - 20:25 | 52452 Anonymous
Anonymous's picture

That is a problem.

But to be honest man, conflicts of interest are the least of our worries with these fucking clowns.

How about firing every enforcement officer first, then we can worry about the rest.

Fri, 08/28/2009 - 20:28 | 52454 Zippyin Annapolis
Zippyin Annapolis's picture

Sorry to spoil the party lads--but please do your research--the Total Amount funding for the SEC via Section 31 fees is fixed By Statute--only the rate varies. It is in the statute.

 

The SEC gets The Same Amount By Statute regardless of what the fee is --get it?

So your thesis on this one is --well over heated and just Wrong.

Does Anyone ever crack the US Code, do any real research at Zero Hedge before the froth forms over the lips?

 

Amateur Hour. Really--

Fri, 08/28/2009 - 21:06 | 52491 Anonymous
Anonymous's picture

You're wrong. You should do your research.
Start here.

http://www.sec.gov/rules/final/34-49928.htm

Fri, 08/28/2009 - 21:11 | 52500 Rollerball
Rollerball's picture

English your second language tool?

http://www.sec.gov/news/press/2009/2009-41.htm

Fri, 08/28/2009 - 21:22 | 52514 Zippyin Annapolis
Zippyin Annapolis's picture

Write me a report and tell me what you think it means --only little Tiny Tools rely on the SEC webpage. http://www.sec.gov/rules/other/2009/34-59477.pdf

Fri, 08/28/2009 - 22:50 | 52594 KeyserSöze
KeyserSöze's picture

Zippy I visited your post and pulled this out...

 "The Commission estimates that it will collect $190,542,394 in fees for the period prior to the effective date of the mid-year adjustment 13 and $8,640 in assessments on round turn transactions in security futures products during all of fiscal year 2009. "

With all due respect do you seriously believe that someone who receives 190M in fee's from any source, whether by statue/code/law/hook or crook ...would not have a vested interest in protecting that revenue stream?  This fee structure is similiar to the fee structure of the rating agencies and you see where that got us.  I believe you missed Tylers point, perhaps I am wrong but clearly this fee alone is a total conflict of interest as it relates to  transactions, capped or not!  If volume/transations collapsed (as real volume has) do you think an adjustment wouldn't be made ?!  Do you think the SEC would rachet up the rate to "meet the code" after investors and banks throw up at the huge adjustments?  Just because things are as you say "in the code" doesn't mean anything.  Additionally, where were you during the Chrysler case? What about your holy grail "code" there?... I understand your cap issue but your argument fails to meet any test of real world business sense.

Sat, 08/29/2009 - 09:05 | 52757 Zippyin Annapolis
Zippyin Annapolis's picture

Dear Keyser you say.."your argument fails to meet any test of real world business sense."

Hello--we are talking about the Government here so how is that any standard? Does the SEC care about their budget--yes. Have transaction, 31 fees been a Very large revenue source, yes but not the only source--they also have fees on certain filings That Are Not Capped. So your argument regarding the uncapped filing fee revenues might be that the SEC "looks the other way" on bond or stock filings because they want more revenue?

(In fact excess amounts collected on these capless sources of revenue actually go to the Appropriations Committees in the House and Senate to be used For Other Purposes--like Earmarks!)

Look--again--it Does not matter to the SEC what the 31 fee rate is --ever.

 

Important Point--Are you listening Tyler Durden? Does it matter to other fee takers that rely on dollar volume metrics, say the NYSE, Nasdaq, Finra, DTCC, BATS--Hell yes in those cases it Does. The Mothers Milk, (Query who might defend HFT??) But here you are simply barking up the wrong tree policy wise on this "conflict" pitch.

 

Sat, 08/29/2009 - 10:02 | 52791 zeropointfield (not verified)
zeropointfield's picture

That's for FY 2009 only.

The statue only makes those adjustments up to 2012.

http://www.law.cornell.edu/uscode/html/uscode15/usc_sec_15_00000078--ee0...

 

Fri, 08/28/2009 - 22:40 | 52595 D.O.D.
D.O.D.'s picture

So with the mid year re-evaluation, what happens when the volume increases back to it's old volume, do they take less fees? No. The term used in the code is "reasonably likely", means they are not required to hit the target spot on.  If they go over, no big deal, but where does the overage go, it isn't discussed in the code.

Sat, 08/29/2009 - 08:30 | 52758 Zippyin Annapolis
Zippyin Annapolis's picture

DOD "So with the mid year re-evaluation, what happens when the volume increases back to it's old volume, do they take less fees? No"

 

DOD the answer is Yes, the fees can and have gone down--they have also gone up when transaction dollar volumes went down. Think rolling averages.

Sat, 08/29/2009 - 16:53 | 52931 D.O.D.
D.O.D.'s picture

It clearly states that the fees are assesed at the begining of the year and may be re-assesed under certain circumstances mid-year.  It doesn't say anything about rolling averages, could you point out the particular part that says that?

Sat, 08/29/2009 - 17:06 | 52937 Zippyin Annapolis
Zippyin Annapolis's picture

Walk it though--start with the statutory number on another post. The SEC "economists" (and I use that tern loosely) Estimate going forward and then True Up--Bottom Line is the SEC Only gets the statutory number-no more or less Regardless of the rate derived to Get the Number.

If you need more let me know.

Sat, 08/29/2009 - 17:15 | 52941 D.O.D.
D.O.D.'s picture

Not much here other than a "take my word for it" rebuttal, sorry, but after all this is the Internet, I think I will hold on to my healthy dose of skepticism.

Fri, 08/28/2009 - 20:30 | 52457 Anonymous
Anonymous's picture

ZH, regulator watchdog. Thank you. Of course.

Regulatory capture, textbook example.

Fri, 08/28/2009 - 20:31 | 52459 NoBull1994
NoBull1994's picture

in the words of david letterman, "nicely packed, bagboy!"  good work.

Fri, 08/28/2009 - 20:37 | 52466 Optimystic
Optimystic's picture

Unbelievable.  God, I hope you guys have VERY deep cover.

 

Fri, 08/28/2009 - 21:01 | 52481 GoldmanSux
GoldmanSux's picture

Fuck. So the SEC has anyalyzed HFT very well already. They are collaborators. They are complicit crimimals. They are whores. Bernie Madoff's big mistake was not cutting the SEC in on the action.

Fri, 08/28/2009 - 21:04 | 52488 Zippyin Annapolis
Zippyin Annapolis's picture

Please read pp 1 and 2 below. 

http://www.sec.gov/rules/other/2009/34-59477.pdf

Note the "target offsetting collection amount" specified in Section 31(l)(1) for fiscal year 2009 is $1,023,000,000.

Gents this is the "target" in the statute that must be met by 31 fees--the rate is simply adjusted to get to the targeted offsetting collection amount"

There can be no conflict the amiunt to be raised by 31 fees is fixed by law--only the Rate varies.

Thank you very much and Mr.Blue thanks you as well. 

Fri, 08/28/2009 - 21:12 | 52502 Sqworl
Sqworl's picture

What law?  What code?  Let's not forget who were dealing with...my foia for copies of wire repayment of tarp by GS,JPM & Co has not been addressed.

Just because they announce something does not make it fact.

Fri, 08/28/2009 - 21:23 | 52515 Anonymous
Anonymous's picture

US Code, Title 15, Chapter 2B, Section 78ee

http://www.law.cornell.edu/uscode/html/uscode15/usc_sec_15_00000078--ee0...

Under the Definitions subsection:

"The target offsetting collection amount for each of the fiscal years 2002 through 2011 is determined according to the following table:
Target offsetting Fiscal year: collection amount 2002 $732,000,000 2003 $849,000,000 2004 $1,028,000,000 2005 $1,220,000,000 2006 $1,435,000,000 2007 $881,000,000 2008 $892,000,000 2009 $1,023,000,000 2010 $1,161,000,000 2011 $1,321,000,000 "

Fri, 08/28/2009 - 21:58 | 52551 Zippyin Annapolis
Zippyin Annapolis's picture

indeed

Fri, 08/28/2009 - 21:30 | 52525 Zippyin Annapolis
Zippyin Annapolis's picture

Are  of you all on Red Bull or what?

Read it slowly and in detail:  http://www.sec.gov/rules/other/2009/34-59477.pdf 

The total amount to be raised by Section31 fees is in the law (like the US Code), year by year--only the Rate varies. Why is this so hard?

 

This particular argument --that the SEC wants to coddle the HFT crowd because of Section31 fees is bogus--just trying to save you further embarrassment. But hey believe what you want to believe--I thought ZH was all about fact. Maybe not?

 

Fri, 08/28/2009 - 22:09 | 52564 D.O.D.
D.O.D.'s picture

Yeah I went through it, and the words "reasonable" and "likely" pop up.  Infering, mistakes happen.  Of course when we are talking about tens of trillions of dollars moving through, a slight .001% error could amount to quite a bit of cash. 

What instantly strikes me is if this is as simple as you try and make it out, why then is it so complicated.  C'mon now zippy, good ol' Albert Einstein said any idiot can make it complicated, but it takes genius to make it simple.  Please explain why all the convoluted math to arrive at a number that has already been predetermined?  Could it be to make the SEC seem useful?  

Also this mid year re-evaluation.  Seems they are basing their math structures on liquidity, which is at the center of debate of HFTP, it's quite clear that you are convinced that either A) The SEC is being unduly scrutinized and held to an unfair standard, or B) There is absolutly nothing strange going on in the American Financial Institution.  Now, I would never go so far as to accuse members of the gov't as having motives other than the best interest of the people, but can you honestly tell me there is absolutely no reason to investigate the SEC and it's possible conflicts of interest in this?  Be honest now, and remember, I read it.

Fri, 08/28/2009 - 22:15 | 52573 . . .
. . .'s picture

Like I said before, what Zippy needs to answer is whether the SEC can get less than the statutory target for aggregate fees of about $1 billion if volume drops low enough.  If so, and if loss of HFT trades would push volume below that threshhold of trades, then the SEC has a conflict of interest because it would lose fees.

And zippy responded, here:  http://www.zerohedge.com/article/why-sec-irreperably-conflicted-issue-high-frequency-trading#comment-52568

Fri, 08/28/2009 - 22:28 | 52587 D.O.D.
D.O.D.'s picture

Still the question of the term "reasonably likely", infers there is an acceptable margin of error, which isn't really discussed what that margin of error is.  In physics, a reasonably likely answer could get someone killed, but I guess financial math is a little more fuzzy.

Sat, 08/29/2009 - 09:26 | 52759 Zippyin Annapolis
Zippyin Annapolis's picture

DOD. Simple concepts sometimes are hard to put into law. Here is the concept. Section 31 fees should fund a large part of the SEC--(BTW there are other uncapped fees on certain filings.) This amount is in law. That number varies each year. Call it X. Here is the equation: Total dollar volume of all stock transaction times (A Rate) = X for each and every year. Obviously No One can hit the number cold, hence the various adjustments. This way the SEC gets what they need to "function" (I use that term cautiously) and the market does not overpay. This was all changed in 2001 by statue--well before HFT. Before 2001 the excess fee collections went to--the Congress to spend mostly on Earmarks, you know to fund those bridges to Nowhere.

 

Hope that helps.

Sat, 08/29/2009 - 10:07 | 52792 Kaiser Soze
Kaiser Soze's picture

Your point is well made, but one thing you overlook is the fact that in 2001 when the statute was changed, HFT did not make up 60-70% of daily volume(by your info it made up 0%). Things have changed quite a bit  and this unintended consequence of HFT has changed the entire landscape of the markets. It would be hard for anyone not to see a very compelling reason for the SEC to "look the other way" on HFT.

Sat, 08/29/2009 - 14:21 | 52880 Zippyin Annapolis
Zippyin Annapolis's picture

Indeed-

Sat, 08/29/2009 - 18:33 | 52983 D.O.D.
D.O.D.'s picture

"Simple concepts sometimes are hard to put into law."

Ding, ding, ding.  Bob, we have a winner, tell skippy what he's won.

A Neeeeewwwwwwww CAR!!!!!

*rahhhhhhhhh*

Fri, 08/28/2009 - 21:39 | 52532 . . .
. . .'s picture

Zippy is correct that the SEC's fee income is capped at a target set by statute.  But the cap is pretty high, so the SEC can still make a lot of money from the fees.

Section 31(j) of the 1934 Securities Act imposes the cap.

Section 31(l)(1) sets the cap.

The law is here.  http://www.law.uc.edu/CCL/34Act/sec31.html

It's not Tyler's fault he didn't mention the cap.  I think his legal advisor Marla didn't read section 31 all the way through.

Fri, 08/28/2009 - 21:41 | 52535 Sqworl
Sqworl's picture

They used the same law to let Madoff shag the entire jewish population and a several others.

Hahahaha and Rangle writes the tax code...and Timmy exploits it...give me fucking break...

Fri, 08/28/2009 - 21:50 | 52545 agrotera
agrotera's picture

That's it Sqworl--the owners of the privately held Federal Reserve who own more than half of the DOW are the only clients that Goldman Sachs needs--so since they with all their agents in the financial service industy buy all elections, and get laws passed to ensure their ability to extract as much money as possible from all of their dealings, then on top of that, rig the financial system itself as to skim and front run all trades, and since they own most all of the politicians, they never have to answer for their crimes,  well, maybe their empire is over-- I hope we can have our republic back. 

Fri, 08/28/2009 - 21:44 | 52540 Zippyin Annapolis
Zippyin Annapolis's picture

At last someone who is not a Vulgarian.

 

 

Fri, 08/28/2009 - 21:53 | 52549 Zippyin Annapolis
Zippyin Annapolis's picture

"by"--I don't know who "marla" is but be Very ssured there is NO WAY that the SEC makes ANY money on the rate regardless of whether it is $1 a mill or $50 a mill.Trust me.

 

Again there is amount X$ written in the US Code for every year. In order to get ther the SEC pegs a Section 31 rate that will yieds X$ for the year, on a rolling basis. Gee for a website that requires math solving I must say I am suprised.

 

So is Mr. Blue and Harvey Keitel. Out for drinks.

I

Fri, 08/28/2009 - 22:01 | 52558 . . .
. . .'s picture

Mr Pink:  "by"--I don't know who "marla" is but be Very ssured there is NO WAY that the SEC makes ANY money on the rate regardless of whether it is $1 a mill or $50 a mill.Trust me.

-------

I said that they try to set the rate to yield the aggregate fee set in the statute.  What I'd like to know, but am too lazy to figure out, is if volume dropped below some threshhold the SEC would lose money and collect less than the cap.  I mean, in the extreme, I'd be surprised if they could loot one trade for the entire statutory target.

By "Marla" I mean Zero Hedge's contributor "Marla Singer", who claims to be a lawyer.

Fri, 08/28/2009 - 22:10 | 52568 Zippyin Annapolis
Zippyin Annapolis's picture

Mr Pink:  "by"--I don't know who "marla" is but be Very ssured there is NO WAY that the SEC makes ANY money on the rate regardless of whether it is $1 a mill or $50 a mill.Trust me.

-------

I said that they try to set the rate to yield the aggregate fee set in the statute.  What I'd like to know, but am too lazy to figure out, is if volume dropped below some threshhold the SEC would lose money and collect less than the cap.  I mean, in the extreme, I'd be surprised if they could loot one trade for the entire statutory target.

By "Marla" I mean Zero Hedge's contributor "Marla Singer", who claims to be a lawyer.

_________________________________________________

 

Thanks--simple--the SEC could raise the rate to whatever to make the annual nut. No limit on what the rate could be. This is a dollar volume metric. I cannot belive that the dollar vol would ever be so low that the amount could not be raised. Do the math.

 

Fri, 08/28/2009 - 22:25 | 52584 D.O.D.
D.O.D.'s picture

Zippy, your flippant refusal to accept any possibility, regardless of your opinion of it's proximity to reality, means one of two things.  You are part of the system, or you are so woefully plugged in, that nothing that is said in this forum will further you or anyone who frequents this forum.  I hear ya, you don't think there is any funny business going on, sounds like you work for the SEC, I think that's their motto, and that is the point.

Fri, 08/28/2009 - 22:28 | 52589 Anonymous
Anonymous's picture

That's a funny comment to make D.O.D., given that you blindly applaud every single post on this site.

Fri, 08/28/2009 - 22:55 | 52614 D.O.D.
D.O.D.'s picture

That's funny cuz I was pretty certain I only applaud the posts I have relative interests in, but I guess you would know better than I.  And, pray tell, how does my applauding of anything have to do with anything?

Fri, 08/28/2009 - 22:47 | 52606 Sqworl
Sqworl's picture

+ 2500..;-)

Sat, 08/29/2009 - 07:26 | 52763 Zippyin Annapolis
Zippyin Annapolis's picture

DOD--sorry left for drinks last nite (Have a Real Life thank you)--hope my other recent posts answered you question.

 

Why do you think that someone who actually knows something about SEC fees has to work for the SEC? Arcane yes but ya know A Whole Lot us Make a Lot of money on Arcane stuff.

 

LOL--look at HFT! Hedge Funds? Algo builders? BMW mechanics? Cirque de Soliel performers?

 

This whole line of "discourse" on this post has a real smarmy Luddite feel, non?

If we do not know and are called on it --well attack the one that does --because--because WE Believe!!!

Suggest a deep breath and a long kayak cruise.

Zippy is doing just that and diving into the weekend chores of research reading and preparing for the next Collapse.

Be happy--

 

Sat, 08/29/2009 - 08:32 | 52780 Chumly
Chumly's picture

Good Ole Boy

Sat, 08/29/2009 - 17:21 | 52943 D.O.D.
D.O.D.'s picture

"Why do you think that someone who actually knows something about SEC fees has to work for the SEC?"

It's not the knowing something abut the SEC it's the manner in which you are absolutely convinced their is absolutely no conflict of interest based on an SEC code.  It seems there are only two choices your are either i) ineptly naive weather by choice or circumstances, or ii) you have a vested interest in the issue. As it appears you are not the kind to be naive, i lean towards the latter. 

It's like if I got into a car accident after running a stop sign, but tried to staunchly defend myself saying, I didn't run a stop sign, that's against the law.  Your argument is based on your interpretation of the code, yet the thing that has brought the entire world financial institution to its knees, is their ability to creatively interpret legal code.

You are effectively saying, "It's impossible for their to be conflicts of interest because the code says so."  I find this an infantile assertion.

"This whole line of "discourse" on this post has a real smarmy Luddite feel, non?"

Sorry didn't mean to hurt your feelings, just having fun.  It's just too easy with someone whose argument foundation is "trust me I'm right, just deal with it."  No leaps in logic there.

"if we do not know and are called on it --well attack the one that does --because--because WE Believe!!!"

I believe what was presented in the piece is not an assertion of fact, although I myself would take it a step further, but rather a call to question the possibility that the SEC may have conflicts of interest in their investigation into the HFTPs, and the fees that are being generated.  You assert as a matter of unquestionable fact that this is a red herring.  Therefore your intentions are being called to question. No need to cry about it.

 

 

Sat, 08/29/2009 - 18:34 | 52984 ReamUs
ReamUs's picture

Mr. Blue can go make love to his little Piano. And I don't really give a crap about your skepticism, 'cuz I'll give you 5,000 shares of Skepticism and raise you Obama's deficit. 

For all you know, they killed everyone at ZeroHedge (healthy skepticism, no?) and replaced them with assholes who put out bad information to discredit the site and any "movement" associated with it.

I'm not drinking the Kool-Aid. But I am drinking a shitload of wodka and Kahlua. 

Sat, 08/29/2009 - 19:25 | 53006 D.O.D.
D.O.D.'s picture

To be honest, for all any of us know, the matrix is real.

It is equally probable that we are merely brain matter floating in a viscous fluid and our so called "life experience" is nothing more than the electric stimuli of some mad scientist running his/her experiments into the source of consciousness.

Another possibility is that I am able, through deductive reasoning and logic, sift the shit from the shine.  It is important to verify for yourself anything that is read here, the blogosphere, or any media for that matter.  It's what I believe the financial world calls due diligence. 

I think what is important here to understand is that there is obviously a very real disconnect between what is intended and what is realized.  The code that sparky hails as the holy grail of SEC faith, may have been written with the best of intentions to fulfill a very real need of funding for the SEC, however, that does not mean it is being used as such a benign vehicle at this stage in the game.  That being said, it does not mean that the fee generation of HFTPs is the veritable smoking gun between the SEC and their lack of any integrity in the world of supervision and regulation.  It does mean that since the SEC is at the heart of the issue at hand, it is probably not the body to do the investigating

(HINT: Think LAPD and Rodney King).

Sat, 08/29/2009 - 20:32 | 53070 ReamUs
ReamUs's picture

I agree that the SEC is evil. But here's the rub - 

If ZH has assumed a level of credibility where they're dictating letters to Senators, then regardless of their best intentions (the end), they have to contend with those who would be more than happy to destroy their credibility (the means).

Like it or not, as the "new kid on the block", they will be held to the highest standard, whereas their MSM "competition" is held to no standards other than those prescribed by their highly vested employers.

Oddly enough, this is the first time I've actually questioned this - but if we run this out and our wishes come true - ZeroHedge becomes recognized as a trusted source (Yes, God knows it can't get any worse than our MSM hacks) - 

BUT we should be striving for something MUCH BETTER. 

For all I know, TD ignores most negative comments. But it appears that Zipster might have a point here. If he's making a valid point that the percentage is theoretically matched to reach a set number, and if historically he can show that it holds true to some extent, then ZH has a problem with their premise I think. And again, I don't know JACK about finance or law. I get logic, though - even if it doesn't suit my purpose.

Anyway, I tried to address my problem with this approach better in my comment that appears deeper in this thread. I certainly don't want to exchange a flawed corporate MSM for an anonymous source that isn't even willing to address critique before they even gain much of a hold on power. That's just scary.

Yes, I trust them more than I do the MSM. But that's not saying much. I'd prefer that deference be based on something MUCH stronger than blind faith. I think we've all had our fair share of change we can believe in.

Sat, 08/29/2009 - 22:11 | 53121 agrotera
agrotera's picture

If there is a mistake in Tyler's letter,  i am Tyler will make an adjustment, period.

HOWEVER, A MISTAKE DOES NOT DISCREDIT A HUMAN BEING, PERIOD.  IF a mistake did discredit a person, I imagine Obama would be impeached by now--he promised no cronyism, and real transparency--and the only reason i used Obama is because he is our president and has  a lot of leverage over all of our lives.  Certainly, Tyler's work stands as a powerful testamentary force of protection against any mistake he might make.

Sun, 08/30/2009 - 13:52 | 53138 m3c (not verified)
m3c's picture

Lets get the talent on the side of the SEC and even this game back up. What say you?

good articles; recommended reading.. http://www.iam...
hat tip: stock market blog economic news

Fri, 08/28/2009 - 23:27 | 52640 seabiscuit
seabiscuit's picture

Trust me? It's the cry of a guilty soul.

Sat, 08/29/2009 - 15:12 | 52898 zeropointfield (not verified)
zeropointfield's picture

You are arguing the wrong issue. Even if the amount is capped that doesn't mean that there is no incentive for the SEC to maximize its cash inflow within these bounds. The fact whether this is legal or not is not the issue.

The issue is that a regulatory agency should not be concerned with whether its actions, enforcement or other, create enough income for the agencies finances. A regulatory agency should solely be concerned with upholding and enforcing the law.

Law and economics to not mix very well.

Fri, 08/28/2009 - 21:13 | 52504 Anonymous
Anonymous's picture

Nice Work

Fri, 08/28/2009 - 21:13 | 52506 agrotera
agrotera's picture

Thank God for your words and the power behind the truth that you are telling!  Although i disagree with your statement that "no other rational human being" would go against their bottom line to report the truth.  The very job of a fiduciary is to do the right thing, period.  The SEC is supposed to be a 'guardian fiduciary'for the country, and in effect is acting on "self-interest" if it acted on it's conflict here.  Sadly, it looks like acting on "self-interest for the TOOBIGTOFAIL financial service  organizations (notably Goldman Sachs) has been the norm for the SEC, making it truly a travesty for all the rest of us.

Fri, 08/28/2009 - 21:20 | 52512 Anonymous
Anonymous's picture

"Yet we are confident that you do, based on your admirable dedication to your noble cause to date."

Somebody get some toilet paper for TD's nose.

Fri, 08/28/2009 - 21:23 | 52516 Lothar the Rott...
Lothar the Rottweiler's picture

Zippy, that you hitting the jflag on Sqworl?

by Sqworl
on Fri, 08/28/2009 - 20:12
#52502

 

What law?  What code?  Let's not forget who were dealing with...my foia for copies of wire repayment of tarp by GS,JPM & Co has not been addressed.

Just because they announce something does not make it fact.

Fri, 08/28/2009 - 21:35 | 52531 Zippyin Annapolis
Zippyin Annapolis's picture

Sorry-- not intended

Fri, 08/28/2009 - 21:38 | 52533 Sqworl
Sqworl's picture

Thanks LTR..BFD..truth stung this douchbag!!!

lol

Fri, 08/28/2009 - 21:40 | 52534 Zippyin Annapolis
Zippyin Annapolis's picture

Actually---I did mean it

Fri, 08/28/2009 - 22:04 | 52559 MinnesotaNice
MinnesotaNice's picture

You guys are hysterical... copying the 'flags' and 'pasting' them into your post... thought I had seen everything but that is an absolute first.

Zippyin, since I have spent my week reading state statutes, would you please simplify the information that you included in the link that you attached to one of you above posts... when I clicked on it I had flashbacks of my week and quickly hit the back button...  exactly how is the rate capped, when is the cap set, and how often does the SEC hit the cap... and if this cap is in place why is this not considered a revenue stream for the SEC?

 

Fri, 08/28/2009 - 22:11 | 52570 MinnesotaNice
MinnesotaNice's picture

Never mind I re-read an explanation you provided above and I get it... the amount to be collected is set, and it is the rate which fluctuates... and so if there is less trading (sales) then the rate must be adjusted upwards to meed the target amount to be collected. 

Fri, 08/28/2009 - 22:32 | 52590 D.O.D.
D.O.D.'s picture

So with the mid year re-evaluation, what happens when the volume increases back to it's old volume, do they take less fees? No. The term used in the code is "reasonably likely", means they are not required to hit the target spot on.  If they get over, no big deal, but where does the overage go, it isn't discussed in the code.

Fri, 08/28/2009 - 22:43 | 52601 MinnesotaNice
MinnesotaNice's picture

Well, D.O.D I am going to have to take your word for that because my mental health requires that I read no state statutes or federal code this weekend... and yes we have been running on lower volume, so yes, that would be a question that needs to be answered... perhaps Zippyin could chime in on this.  And by the way I like your avatar much better than the previous one... much more thoughtful and contemplative. 

Fri, 08/28/2009 - 23:05 | 52621 D.O.D.
D.O.D.'s picture

Yes I know it's Friday night, which is why i was especially pissed to have to go through and read it.  And it says "reasonably likely", it's an estimate, like if you went in to get your car fixed and the mechanic told you it's "reasonably likely it will cost $500", but turns out this was wrong and that was wrong, and the final charge comes out to $1500, if you approved the work, there is nothing you can do, it's only an estimate, not some concrete set in stone number as sparky infers. 

And thanks, I'm exploring my inner avatar and going through many layers, and I like this one too.

cheers

Fri, 08/28/2009 - 21:43 | 52537 Lothar the Rott...
Lothar the Rottweiler's picture

I'm jamming to Marla's work in progress right now.

Don't need some lackeys coming in here upsetting the Friday night party.

I just wanna chill to RZH. :)

Fri, 08/28/2009 - 21:43 | 52538 Anonymous
Anonymous's picture

I wouldn't rush to judge there, chief.

Since you asked earlier, what Zippy is referring to is under U.S. Code: Title 15, Chapter 2B, Section 78ee.

http://www.law.cornell.edu/uscode/html/uscode15/usc_sec_15_00000078--ee0...

Fri, 08/28/2009 - 22:00 | 52554 Zippyin Annapolis
Zippyin Annapolis's picture

Yes indeed--Red Bull is taking its toll--

Fri, 08/28/2009 - 22:36 | 52592 Marshal Ney
Marshal Ney's picture

Dude, you're peeing in the paranoia party punch bowl. Now if you really want chaos, tell them you think Ayn Rand is a hack.

Fri, 08/28/2009 - 22:37 | 52593 D.O.D.
D.O.D.'s picture

Since the mid year adjustment has already been made, based on the total lack of volume that has been occuring, what happens to the fees if volume returns, they can't go back and change the rate again.  The target is a reasonably likely target, what happens if they over-shoot, where does that money go?  C'mon now skippy, keep up with me....

Fri, 08/28/2009 - 23:10 | 52626 Project Mayhem
Project Mayhem's picture

You may complain about "vulgarity" but your command of your own intellect is indeed vulgur.  Take issue with the facts please.

Sat, 08/29/2009 - 11:09 | 52831 Sqworl
Sqworl's picture

XXX

Fri, 08/28/2009 - 23:22 | 52632 CD
CD's picture

It is valid to question what the $@* the SEC does with its $1B+ budget. It is also valid to ask whether it is indeed following the accounting rules set out in its founding and governing charter. We can also talk about whether subsequent riders/earmarks on under-the-radar bills have modified the structure outlined in the SEC Act of 1934:

 

(1) TARGET OFFSETTING COLLECTION AMOUNT.—The target
offsetting collection amount for each of the fiscal years 2002
through 2011 is determined according to the following table:
Target offsetting
Fiscal year: collection amount
2002 .......................................................................................... $732,000,000
2003 .......................................................................................... $849,000,000
2004 .......................................................................................... $1,028,000,000
2005 .......................................................................................... $1,220,000,000
2006 .......................................................................................... $1,435,000,000
2007 .......................................................................................... $881,000,000
2008 .......................................................................................... $892,000,000
2009 .......................................................................................... $1,023,000,000
2010 .......................................................................................... $1,161,000,000
2011 .......................................................................................... $1,321,000,000

 

But just what in the hell WOULD the SEC do with money it collects that is beyond their annual budget? There are provisions specifically against making this into an explicit tax:

 

(2) GENERAL REVENUES PROHIBITED.—No fees collected
pursuant to subsections (b), (c), and (d) for fiscal year 2002 or
any succeeding fiscal year shall be deposited and credited as
general revenue of the Treasury.

 

So, is the "extra" revenue then being siphoned secretly? To where, to whose benefit?

 

Now, it is rather odd that the per $1M fee should increase nearly fivefold, "coinciding" with a historically huge rally in the markets -- but Tylers have been railing about all this massive price movement ON NO VOLUME. Yes, they knew volumes have/would drop drastically, and HFT is a huge problem (or a symptom of a larger problem, I am beginning to lose track). But the SEC and its (non)functionality is certainly a symptom of a condition ongoing for years -- as many have pointed out: WHERE ARE THE JAIL TERM CONVICTIONS??? Beyond the "deterrent" examples of a handful of Enron/Tyco execs, there have not even been punitive fines, let alone serious punishment.

 

The SEC is fundamentally broken in that it is not fulfilling its core mission and raison d'etre: "The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation."

Well, OK, it's doing fine in facilitating the capital formation (redistribution?) in favor of the major players in the system. But this is the wrong line of attack -- SEC is the wrong watchdog to send after HFT not because of the immediate monetary benefit, but because of the incestuous web of mutual dependencies in general (not to mention the SEC's unwillingness/inability to even look at, much less punish wrongdoings on truly massive scales).

 

PS: Link to SEC Law:

http://www.sec.gov/about/laws/sea34.pdf

Fri, 08/28/2009 - 23:29 | 52642 D.O.D.
D.O.D.'s picture

"(a) Recovery of cost of services

The Commission shall, in accordance with this section, collect transaction fees and assessments that are designed to recover the costs to the Government of the supervision and regulation of securities markets and securities professionals, and costs related to such supervision and regulation, including enforcement activities, policy and rulemaking activities, administration, legal services, and international regulatory activities"

from

http://www.law.cornell.edu/uscode/html/uscode15/usc_sec_15_00000078--ee0...

I didn't want to read the whole thing, but I did want to take up this part a.  Since these fees are taken under the pretense of supervision and regulation, which by fact of the events of late '08 and early '09 were clearly not being done; Should the SEC have any rights to charge any fees whatsoever?!?

Once more I would like to call for a civil class action lawsuit against the SEC for breech of contract.

 

Fri, 08/28/2009 - 22:01 | 52557 waterdog
waterdog's picture

Jeez Louise, I hope you never write a post to convince me to give you all my money.

Fri, 08/28/2009 - 22:05 | 52561 andrew123
andrew123's picture

I hate to say this, but why would you expect the senator to have a contingency plan?  If you want something done right (and have the knowledge and capability), do it yourself.  Perhaps this has been done under separate cover letter, but if not, why not provide the Senator with draft legislation?  Given all the effort you spend bringing corruption to light, why not spend the time to actually propose specific change?  Thank you.

Fri, 08/28/2009 - 22:09 | 52565 agrotera
agrotera's picture

You are a prophet andrew123--this letter was a strong step in that direction.

Fri, 08/28/2009 - 22:53 | 52609 Tyler Durden
Tyler Durden's picture

were you the kind of kid who turned to the last page of the detective novel?

Sat, 08/29/2009 - 00:32 | 52679 My cognitive di...
My cognitive dissonance's picture

Joe Welcome.

Fri, 08/28/2009 - 22:10 | 52569 waterdog
waterdog's picture

Well I have added it up. For this post there are 12 metric tons of junk scattered between here and there.

Fri, 08/28/2009 - 22:13 | 52574 Pizza Delivery Man
Pizza Delivery Man's picture

I'm gona win megamillions tonight. Just wanted to let everyone know.

1/3 of a billion.

Fri, 08/28/2009 - 22:45 | 52604 MinnesotaNice
MinnesotaNice's picture

Probably will interest more people when you actually win it... make sure and let us know :-)

Fri, 08/28/2009 - 23:06 | 52622 Pizza Delivery Man
Pizza Delivery Man's picture

Nope...Didn't make it.

Fri, 08/28/2009 - 22:19 | 52578 waterdog
waterdog's picture

I had a bad nightmare last night. I dreamed that I came home and found Bernanke, FDR, and Parker Willis in bed with my wife. The scary part was not the three with my wife, it was the fact that I had a wife that made me sit up and scream. It is Friday people, let it go.

Fri, 08/28/2009 - 22:40 | 52597 andrew123
andrew123's picture

Tyler, I want to reiterate the sentiment posted by DOD on a previous thread:  please find a way to make your audience part of the solution.

Sat, 08/29/2009 - 00:27 | 52677 agrotera
agrotera's picture

Hey andrew123, on the most simplistic level, we are part of the solution, because we all feel strongly about the issues we discuss here, and i am sure that we also spread our own voice and the work of Tyler et al, everywhere we go...and that is a powerful force...one spark can get everyone on fire for making right what has been wrong for so long. 

Sat, 08/29/2009 - 00:42 | 52682 Miles Kendig
Miles Kendig's picture

We are.  Just keep on keepin' on doing what you do because you are an integral part of what is and continues to be formulated.  Trust it and believe. The avalanche has already tipped over and is on the move.

All The Best

Fri, 08/28/2009 - 22:41 | 52598 Anonymous
Anonymous's picture

Im armed and waiting for a spark

Fri, 08/28/2009 - 23:42 | 52643 Hephasteus
Hephasteus's picture

LOL. It's so funny it's like you know your enemy is a cruel bastard that resorts to violence but first you have to have the big intellectual arguements that come before the fight. Once you logically dismantle their authority they automatically revert to violence to try to damage you enough to disconnect you from everything. This conflict won't end on earth. It'll continue on into heaven and unfortunately you can't take your tanks with you to heaven. Oops.

We'll be given the job of judges and we must know what the job of judge is all about.

http://www.youtube.com/watch?v=onZd2WJKiG0&feature=related

 

Fri, 08/28/2009 - 22:43 | 52602 Sqworl
Sqworl's picture

Marla......my shisha and this music is so perfect. Thank you!!!

Fri, 08/28/2009 - 23:18 | 52635 Anonymous
Anonymous's picture

the problem is you just told a democrat that the government is making a ton of money off of this so know he definatly going to turn the blind eye now.

Fri, 08/28/2009 - 23:35 | 52646 Anonymous
Anonymous's picture

http://www.thestate.com/business/story/919034.html

Nearly half of South Carolina banks lost money in the second quarter as sour real estate deals continue to eat into the institutions’ bottom lines, federal regulators reported Thursday.

The Federal Deposit Insurance Corporation, which insures bank deposits, reported that nearly 45 percent of 67 S.C. commercial banks were not profitable for the quarter, which ended June 30, compared with 22 percent for the same period in 2008

Fri, 08/28/2009 - 23:35 | 52648 wheaties
wheaties's picture

Good job TD and the ZH Crew.  Don't forget to mention that the amount of money the government pays is generally under that of Wallstreet.  I hate to say it but even at 250,000 a person they will never compete.  The more skilled people will realize that they can make more on The Street than policing it.

Fri, 08/28/2009 - 23:37 | 52649 D.O.D.
D.O.D.'s picture

Or they can get paid more pretending to police it.

Fri, 08/28/2009 - 23:41 | 52654 Missing_Link
Missing_Link's picture

I want Tyler Durden running the Treasury Department.  It's the only solution.

Sat, 08/29/2009 - 01:37 | 52713 Hephasteus
Hephasteus's picture

We won't even demand he disaggregrate himself. But since he's 40 people we gotta pay him well.

Fri, 08/28/2009 - 23:43 | 52655 D.O.D.
D.O.D.'s picture

REPOST:

 

"(a) Recovery of cost of services

The Commission shall, in accordance with this section, collect transaction fees and assessments that are designed to recover the costs to the Government of the supervision and regulation of securities markets and securities professionals, and costs related to such supervision and regulation, including enforcement activities, policy and rulemaking activities, administration, legal services, and international regulatory activities"

from

http://www.law.cornell.edu/uscode/html/uscode15/usc_sec_15_00000078--ee0...

I didn't want to read the whole thing, but I did want to take up this part a.  Since these fees are taken under the pretense of supervision and regulation, which by fact of the events of late '08 and early '09 were clearly not being done; Should the SEC have any rights to charge any fees whatsoever?!?

Once more I would like to call for a civil class action lawsuit against the SEC for breech of contract.

Sat, 08/29/2009 - 01:41 | 52715 Hephasteus
Hephasteus's picture

The poor government. Hundreds of billions in tax revenue and they have to go hat in hand to get people they watching to pay them to watch. Poor poor government. They'll never be able to afford leer jets for congress now that we knowz how broke they are.

Fri, 08/28/2009 - 23:45 | 52657 Anonymous
Anonymous's picture

It matters not after you read the link below. Even if you
don't read it, just look at the graphical data provided and you should be enraged at what's happening to the private sector economy in this country:

http://fofoa.blogspot.com/2009/08/no-free-lunch.html

.

Fri, 08/28/2009 - 23:46 | 52660 Anonymous
Anonymous's picture

It matters not after you read the link below. Even if you
don't read it, just look at the graphical data provided and you should be enraged at what's happening to the private sector economy in this country:

http://fofoa.blogspot.com/2009/08/no-free-lunch.html

.

Sat, 08/29/2009 - 00:09 | 52671 zeta
zeta's picture

 

Noam Chomsky is to Politics as Tyler Durden of Zero Hedge is to Wall Street.

 

Sat, 08/29/2009 - 00:33 | 52680 Miles Kendig
Miles Kendig's picture

There are all sorts of ways to influence, define, refine, postulate, educate & eradicate.  The drive from the entrenched to sheer is well known and appreciated.  I am sure that ZH and many of those associated with it, either directly or indirectly have a grasp.

Have fun TD and assoc.

Sat, 08/29/2009 - 00:52 | 52688 Assetman
Assetman's picture

It's Friday night and I'm feeling like its a low brain activity day... but please, somebody answer me this:

Apparently, these capped target fees to the SEC is enough to meet their budgetary needs for any specified Fiscal Year.

Given that, is it safe to assume that if HFT is providing 70% volume to any one exchange that at least 50% of the total dollar volume to help fund the target would come from HFT?

Unless the HFT guys are churning low single digit stocks out the wahzoo, I see a very significant conflict of interest.  While rates can be adjusted-- and even lowered due the HFT-- the proportions being "contributed" by HFT must be significant.

I say this because "Mary Mary Quite Contrary" Shapiro claims to need a lot more money for the SEC to do their job.  So... what if the target becomes $2 billion?  $3 billion?  Where does the money come from?  Do the conflicts of interest become greater as HFT ramps an even greater % of volumes?

It appears I have more questions than answers here. :)

 

Sat, 08/29/2009 - 03:07 | 52718 Hephasteus
Hephasteus's picture

Simple you securitize heroine. Then watching it's activity becomes trivial. If the checks are coming you know there is heroine. If they don't then you know that industry is in trouble. BRILLIANT. But if society doesn't like heroine then you simply continue with the plan while cracking down on the smaller and "unlicensed" heroine dealers. This way you look like you are against something until people find out what you are really doing and figure out that you aren't really against it you are just against competition for it. The SEC doesn't need a bigger budget and more people to work for it. Look how well they protected Bernie Madoff under thier gentle protective shield. People want to know that they are being ripped off by the absolute best of the best. Or else they find it offensive. The cream can rise to the top if give them enough assistance keeping threatening competitors off thier back. SEC only brings you the absolute finest con artists and security schemes.

Sat, 08/29/2009 - 08:23 | 52775 Chumly
Chumly's picture

Mo Money, mo money it's all about mo money, and the love of it corrupts.

Our "Point of No Return" has vanished over the horizon and darkness has set upon the land.

Sat, 08/29/2009 - 00:58 | 52694 Anonymous
Anonymous's picture

What's the DTCC's role in all this? Does this agency make any money on holding all these stocks in street name? I know this doesn't relate to HF trading but has this agency ever been audited?

Sat, 08/29/2009 - 06:32 | 52760 Zippyin Annapolis
Zippyin Annapolis's picture

The DTCC fees Are Not capped and they clean Up on high dollar volumes--aka HFT.

Sun, 08/30/2009 - 13:52 | 53139 m3c (not verified)
m3c's picture

Options limit that game.

good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions

Sat, 08/29/2009 - 01:07 | 52701 michigan independant
michigan independant's picture

It is a leper colony on the Hill. Only a few are not diseased. Only a fool can wish stones to bread and even he healed some and feed more at that point in time on the specific event only and went to pray and sent them home to work and live there lives and taught a few more to wisdom. Countless millions are depleting life savings as we seek there wisdom on the Hill. I live on Michigan and give what I can to those in need. The Gatekeepers cannot solve your problem to value and principles. The SEC is overwhelmed and I feel they know its over also but still they must even when there services are not needed by the public observation over the last decade alone. Still they need help to try those who are worthy. Writing the Senate has produced limited results as the desease over the years is top to bottom since I have tried as many have also. Mr. Obama knows to survive this calamity he needs the middle ground even as the right and center plays have paved the way for the left who want's the crises mentality to garner money until there is none as we are or very soon to be. It has never produced as the left has always done and what is left in this mixed economy is as such since we have copious links to it as we already know. We have another round of dismissals this fall not to mention the thousands per day losing work as we think. I am old enough to remember the stratagem in the States when the war on poverty was waged. I do not need to enumerate the failures since we know what they are. I did mention a few days back I was to interview the locality of a good friend in a local jurisdiction to five reporting townships under his elected stewardship. There are in the black but projects are indefinitely delayed. No jobs but to maintain current staffing. Monday one is to be dismissed and he was distressed to say the least. We drifted to topical discussion to what the park servives needed untold millions for computers it provided no long term solution to progression in the economy and he discussed His Senators delema to pecking order spending. He is keenly aware of his situation as is his peers on the board. He is having internal focus with some staff who are bright but need to look forward to the final compression scenarios we are seeing in the Corporate areana givent the balance sheet depression and debt to GPP/Customer base issues which suddendebt have enumerated very asustly over the years. We all know the challenges but it is parmount to security in your locality to plan as such. I cannot stress enough the importance to support those endeavors which value add only to establish stability and give to the food banks in your service and humilty to your community. The core focus needs to be constructive measure to rebuild from the inside out and stress fair trade principles. I will end with wishes that our leadership focus only on value in these difficult times. We have watched this for years develope and write in concise and clear terms to your responsible representive. It is past party lines and indeed the hour is late in a mixed market rent dissipation global economy. I will convey they knew indeed this was coming and even Lord Keynes told them in his last treatise. I knew when Mr. Nixon conveyed we needed a enrgy plan and a handfull did listen but more did note. Sorry for the long post. Fight dammit

 

 

 

Sat, 08/29/2009 - 01:48 | 52719 Anonymous
Anonymous's picture

Recap of facts:
1. SEC collects fees to fund its operations, using a % of dollars traded adjusted to hit an annual target. These are taxes that all investors pay to trade securities.
2. HFT traders pay a very substantial portion of these fees due to high volumes traded.

Now we know you've got no love for high frequency traders, or anyone else who is smart enough to make money when there is no easy ride on the next bubble, but come on...

HFT IS PAYING YOUR FUCKING SEC TAXES and you complain about it???? This is honestly the most idiotic complaint I've heard about HFT.

Sat, 08/29/2009 - 02:47 | 52739 Careless Whisper
Careless Whisper's picture

Looks like Mr. Zippy is already starting the propaganda touting the (future) fair and intellectual analysis from the SEC on HFT. I wouldn't be surprised if the analysis hasn't already been drafted by some helpful volunteers over at 85 Broad.

I really don't give a shit about Article 31 or any other Article that is more complicated than the Terms and Agreement of my Chase Visa card.

All I know is Harry Markopolos informed the SEC about Madoff's ponzi scheme in 2000 and continued to pursue it with the SEC for years, including his famous 21 page report in 2005. As you all know the SEC didn't investigate Madoff, or perhaps they did. In any event I think they are either incompetent or corrupt and the fees they collect will only add to their power of incompetence or corruption.

So I applaud ZH for suggesting that the legislative branch of our government take action independent of the SEC "analysis".

 

 

 

Sat, 08/29/2009 - 06:42 | 52761 Zippyin Annapolis
Zippyin Annapolis's picture

Careless--If you think I am in favor of the SEC you are Sadly off of your Red Bull. Just trying to save zh/Tyler Durden the Embarrassment of Being Wrong on this particular "conflict of interest" argument he dished up because it factually Does Not Hold Water in the least.

 

Of course in my Humble view neither Kaufman nor his AA will really know the difference so Party On Dude. This "Blind Faith" in the electeds BTW has me Greatly Amused.

Must be that JFK worship thing or something.

 

Great website and a good effort. Lots of substance, great input but being Flat wrong on the facts Hurts the overall message(s).

 

This Section 31 fee stuff ain't rocket science.

 

Cheers.

Sat, 08/29/2009 - 11:02 | 52827 Sqworl
Sqworl's picture

Sec staffed with homo's like Mr. Pinky!

Proof of the best money regulation can buy!

http://www.youtube.com/watch?v=8PlLCKW4zuY&feature=related

Sat, 08/29/2009 - 14:24 | 52881 Zippyin Annapolis
Zippyin Annapolis's picture

Planet Earth. This is Major Tom to Ground Control-A homophobe on Saturn. Actually it Was Uranus--back at you Vulgarian.

Sat, 08/29/2009 - 15:06 | 52897 ReamUs
ReamUs's picture

I don't get why Zippy is being treated like an Obama hater at the Daily Kos? 

If he's incorrect, then can someone explain why? If he is correct, then it would appear that he was only attempting to correct one issue with article. I suspect Tyler makes mistakes every once in a while? 

Or is all of this simply a matter of opinion? 

Zippy is implying that Tyler's post might prove embarrassing because it bases some of its criticism on something that Zippy relates is not true. That doesn't mean that the SEC is to be trusted - it just means that the argument needs to be reworked?

I don't know jack about finance or law. But as far as the debate in the comments here goes, I don't understand why Zippy is under attack? If he's wrong, he's wrong. I don't get the bit about him being a lackey or stooge or SEC insider or whatever? Even if he is, would it matter if he's right? 

And if he is wrong, then just shoot down his argument and dismiss him afterward, right?

Okay, off to listen to some bands on a hot Saturday afternoon. 

Sat, 08/29/2009 - 15:16 | 52900 Zippyin Annapolis
Zippyin Annapolis's picture

Ideed. What is so funny about peace love and understanding? (apologies to EC)

Sat, 08/29/2009 - 16:02 | 52912 ReamUs
ReamUs's picture

Ne'ermind. Off to drink.

Sat, 08/29/2009 - 16:05 | 52915 Zippyin Annapolis
Zippyin Annapolis's picture

zh is good a real service--enjoy it a lot.

 

Being the "shit bag of the day" really doesn't bother to me in my line of Work--Hower Mr. Blue and Harvey Keitel Are Really pissed and we are going for a ride. Addresses anyone?

Sat, 08/29/2009 - 16:05 | 52914 Careless Whisper
Careless Whisper's picture

Sqworl you have it backwards. The SEC is full of Brooks Brothers preppy heteros and Breeders.

It's all about monogrammed shirts, golf, and an incredible ability to write lovingly about themselves. You don't expect them to "pinch" one of their own do you? Let's not forget Eric Sawnson and Shana Madoff.

Your video clip proves my point exactly. Look at Linda Thomsen... definately not a lesbian. Look at her string of pearls with matching pearl earings, and dumb as shit, unless the topic involves Jack Rogers sandals. 

If anything, we need a bitch ass lesbian running the SEC. Here's my nominee - and her bailout plan which I think makes perfect sense:

http://www.youtube.com/watch?v=MXznKV7rw7k

 

 

Sat, 08/29/2009 - 08:40 | 52773 Chumly
Chumly's picture

Whatever they were intended to be (a regulatory agency or something), they've become

Scum Eating Crooks since then.  Someone posting in this thread wreaks of being a f*cking sociopath-bureaucrat, a defender of this corrupt Banana Repubic.

Good Forensics ZH.

 

Sat, 08/29/2009 - 08:36 | 52781 Anonymous
Anonymous's picture

Zippy, how nice of you to compliment this website after all the name-calling in your prior posts. If you wanted to bolster your argument, you should have ditched the ad-hominem attacks at hello.

I liked CD's post the best - it is very interesting that the SEC upped the amt from $5.60 to $25.70 in March of this year -- Why? My guess is that the government needs this shadow tax money - and that there is an obvious conflict of interest at play- Whether the SEC gets its loot directly:

--Probably can't - because of this cap

--or indirectly (raise the fees, get the spillover into the General Fund and then cry poverty to get the money, or a good chunk of it, right back into your budget -thus neatly skirting the cap problem),

--or simply by ensuring that spillover funds will be created - either to fund your agency indirectly or other goverment agencies with which you curry favor, or who are may have told you in no uncertain terms they are depending on you to generate this underground revenue stream.

Zippy bestows on this cap some very magical, moral properties that just do not exist--not with this agency, not with these regulators, not with sums of money like that or politicians like this.

Some fascinating history on the SEC's embarrassment of fee riches:

http://www.thefreelibrary.com/STA's+Korins+Calls+for+Reduction+in+Section+31+Fees%3B+Says+Collections...-a059628324

Excerpt:
Under the complex deal worked out in conference, transaction fees remain stable until FY 2007, when they drop dramatically. A portion of the registration fee is deposited as General Fund revenue, and a portion is made available to appropriators as offsetting collections. Transaction fees remain at 1/300th of 1% until FY 2007, when they are reduced to 1/800th of 1%. Beginning in 1997, NASDAQ trades became subject to the full transaction fee rate. While the exchange transaction fees are collected as General Fund revenue, the NASDAQ transaction fees are deposited as offsetting collections. By pushing general revenue losses into the out-years, the new fee structure avoided budget scoring problems.

Current Situation and Impact Unfortunately, actual fee collections have significantly outpaced the CBO's and OMB's conservative estimates of market growth relied on by this Committee and Congress in enacting the fees. In FY 1997, actual collections from all sources grew to $990 million dollars - over three times the SEC's budget of $305 million. In FY 2000, the SEC's budget is $370 million, but it will collect over $1.8 billion in fees.

Sat, 08/29/2009 - 10:34 | 52801 Anonymous
Anonymous's picture

One should not lose sight of a simple solution....that moves forwards....not backwards....

Technology such as BATS has proven that an exchange that offers direct access can work....and can be fair....

What is not fair ?

Taxes on each transaction
Market makers in control of spreads
Algos that game the system electronically....

What is fair ?

1) A one second minimum....
2)First come first served....
3)Same transaction costs to all....
4)All transactions tax free....
5)Direct access electronic exchange technology....ie BATS
6)No public securities trading in any form
on any form of private means....
7)Defragmenting the exchanges....

Done....

Sat, 08/29/2009 - 18:23 | 52977 D.O.D.
D.O.D.'s picture

+10

Sat, 08/29/2009 - 10:34 | 52805 waterdog
waterdog's picture

I know what you mean Andrew123. I hate it when everyone is being real serious and some nitwit comes along and makes a comment that is off topic. It destroys the whole family feeling of the site. It is like everyone is sitting down eating Sunday dinner and discussing the issues of the day when the doorbell rings and that redheaded stepchild has come back to ruin it all.

Careful if you refer to D.O.D. as support for your position. I hear he bites pretty hard.

Sat, 08/29/2009 - 18:18 | 52974 D.O.D.
D.O.D.'s picture

What, I'm the bitting red headed step child now, that no one wants to have sunday dinner with?

Sat, 08/29/2009 - 10:48 | 52819 Anonymous
Anonymous's picture

you have very faulty logic. the SEC is not in bed with HFT shops. if HFT accounts for 50% of daily volume and gets banned or curbed, the SEC fee to the rest of the market will double. it has to be paid anyways and if HFT guys do not prime pump the market, the fee would be even higher.
what is happening is that HFT shops are allowed to rape investors in exchange for lowering their SEC fee.

Sun, 08/30/2009 - 13:51 | 53140 m3c (not verified)
m3c's picture

2100s mindset: for reasons of transparency all city council subcommittee meetings are live-broadcast over the internet in 1080p

good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions

Sat, 08/29/2009 - 11:22 | 52838 Sqworl
Sqworl's picture

Two SEC Lawyers Examined Over Insider-Trading Concern (Update1)

By David Scheer and Jesse Westbrook

May 15 (Bloomberg) -- U.S. prosecutors and the FBI are investigating whether two Securities and Exchange Commission lawyers illegally used nonpublic agency information to bet on stocks, SEC Inspector General David Kotz said in a report.

Kotz, who told Congress last year he was examining whether frequent trades by the pair broke agency rules, referred the case to the U.S. Attorney’s Office in Washington after finding evidence the bets might amount to insider trading, he wrote in the March 3 report released by Republican Senator Charles Grassley. Both lawyers remain at the agency and denied improper conduct.

The report faults the agency for inadequately monitoring trades by employees and relying on an “honor system.” The lawyers frequently discussed stocks at work, traded in at least one company under investigation and didn’t properly disclose some transactions, it says. One lawyer made 247 trades in the two years ending January 2008, and the other made 14.

The agency “has essentially no compliance system in place” to ensure employees don’t abuse the “tremendous amount of nonpublic information they have at their disposal,” Kotz wrote.

The SEC is already working on steps to guard against potential misconduct, and the report doesn’t conclude that insider trading occurred, agency spokesman John Nester said. The SEC’s new chairman, Mary Schapiro, has “made it a priority to significantly improve the agency’s ethics and compliance programs around employee stock ownership,” he said.

“We take seriously even the suggestion that any SEC employee would engage in insider trading,” Nester said.

‘Hard to Imagine’

The regulator is developing a new computer system to collect and review reports of employee trades, Nester said. It is also hiring a chief compliance officer and “clarifying” rules on stock investments by personnel.

The 51-page report was redacted to remove names of employees and the stocks they traded. While it describes some bets, it doesn’t say whether they were profitable or if nonpublic information later affected stock prices.

The review was prompted after one employee repeatedly secured clearances from the agency’s ethics office to make stock bets. She expressed a keen interest in tracking markets, watching news programs before and after work, and sometimes following stocks on her laptop, the report said. Her portfolio reached $170,000 before declining to $45,000 last October.

“It’s my passion,” she told investigators.

Sold Stake

Two months before her colleagues opened an inquiry into a “large health-care company” she sold her entire stake, the report says. She sold stock in a “global” oil company two days before a nearby coworker started an investigation.

Both lawyers also traded shares in a “large financial services company,” it said. Another colleague told investigators she had told the lawyers under investigation over lunch that the company faced investigations. They didn’t recall the conversation.

“It’s hard to imagine a more serious violation of the public trust than for the agency responsible for protecting investors to allow its employees to profit from non-public information about its enforcement activities,” Grassley, an Iowa Republican, said in a May 14 letter to Schapiro.

He asked what disciplinary action the employees will face and what the SEC has done to determine how “systemic” insider trading by agency staff may be. He also asked what systems the SEC has to “flag” suspicious transactions and whether the agency will impose further restrictions on employees’ trading. Grassley requested a briefing by agency staff by May 28.

Kotz has stepped up internal probes at the agency since he was appointed in December 2007, questioning the regulator’s policies, personnel decisions and handling of investigations. The SEC inspector general is responsible for conducting independent probes to detect waste, fraud and abuse.

Sat, 08/29/2009 - 12:22 | 52854 ptoemmes
ptoemmes's picture

To paraphrase a quote attributed to Upton Sinclair:

It is difficult to get [the SEC] to understand something, when [their income] depends upon [them] not understanding it.

http://en.wikipedia.org/wiki/Confirmation_bias

In the early 20th Century, American author Upton Sinclair observed that, "It is difficult to get a man to understand something, when his salary depends upon his not understanding it."

Pete

Sat, 08/29/2009 - 12:44 | 52860 Sqworl
Sqworl's picture

Thank you....You do not bite the hand that feeds you.

SEC directive, only get the small guy, avoid Management, Principals and politicians...

Sun, 08/30/2009 - 14:55 | 53394 ptoemmes
ptoemmes's picture

At the risk of being junked again that is one interpretation of Sinclair's quote but not the prevalent one IMHO, or one I'd choose, and  not the one I intended.

If the SEC dog does not or cannot bite the hand that feeds it "we" can always find a bigger dog.

ZH - WOOF.

Pete

Sat, 08/29/2009 - 17:29 | 52933 ReamUs
ReamUs's picture

"The reason is that the SEC, in alignment with many of the very industry players who may be abusing market structure for their own tiered benefit, stands to benefit significantly from an increased amount of daytrading volume across all markets, and, in fact, based on actions as recent as 4 months ago by the SEC, the regulator is well aware of the monetary benefits that ever-increasing churn creates for the commission and is fully intent on capitalizing on them."

Not to rubberneck - but is this premise wrong or is Zip full of crap? 

And I realize no one at ZH gives a rat's ass about my opinion - but I don't approach this site with any sense of reverence for the contributors. But I do have more respect for them than anyone in the MSM.

Maybe I haven't caught it before - but these open letters to Senators and whatnot seem new to me. The first open letter I ever read was some spat going on between ZH and GS, written by Marla.  It seemed that Marla rattled off a response very quickly as she was excited to receive a response from the "Powers That Be"? I guess I didn't realize ZH had become such a "Playa" :) So is the Senator expected to read this or am I missing the inside joke here?

Whether power rests in the hands of some Ivy League brats in the MSM or anonymous bloggers on the internet - I'd really like those people to be prepared to answer their critics. And yes, my buzz is bolstering the faux bravado :)

Thanks.

Sat, 08/29/2009 - 22:21 | 53136 CD
CD's picture

 

I must reiterate my earlier point:

'But this is the wrong line of attack -- SEC is the wrong watchdog to send after HFT not because of the immediate monetary benefit, but because of the incestuous web of mutual dependencies in general (not to mention the SEC's unwillingness/inability to even look at, much less punish wrongdoings on truly massive scales).'

'This' meaning that the reason the SEC will never truly objectively rule on the role of HFTs is that it stands to gain monetarily from the fees it generates.

I just had an even MORE devious idea. Bear with me. One reason to increase the fee fivefold is b/c the transaction volume (by $ amount) has dropped to 20% of its former value, thus everyone needs to pay more in. Now, volumes have been low, but NOT BY THAT FACTOR. So the other rational reason to raise the fee fivefold is IF YOU ARE MAKING 70-80% OF THE TRANSACTIONS EXEMPT FROM THE FEE.

Think about this for a moment. And take a look at:

SEC. 31. [78ee] TRANSACTION FEES.

(f) EXEMPTIONS.—The Commission, by rule, may exempt any sale of securities or any class of sales of securities from any fee or assessment imposed by this section, if the Commission finds that such exemption is consistent with the public interest, the equal regulation of markets and brokers and dealers, and the development of a national market system.

Am I totally off base here? Is there anything that requires the SEC to disclose who is and who isn't paying this volume-based fee? Am I the only one who was slightly puzzled by the few cents added to his/her broker commission fee after each security transaction in the second half of this year?

This would be an INCREDIBLE incentive -- not only do they collect the volume rebates, but THEY DON'T PAY THE VOLUME FEES! This, if true, would be abso-f*cking-lutely BRILLIANT. Along the lines of Bruce's little guest contribution on the "Pony" Trade (see headline above).

 

PS: Come on, I can't seriously have been the first to think of this, right? Is ZH stringing us along a little bit, seeing how fast we catch on?

 

Sun, 08/30/2009 - 13:52 | 53142 m3c (not verified)
m3c's picture

"...under Landis we were taught how to get things done. And we're now going to go ahead and get them done." - Douglas

good articles; my newest bookmarked finance website ..http://www..
hat tip: finance news & finance opinions

Sat, 08/29/2009 - 23:04 | 53175 CD
CD's picture

I highly recommend a closer browse of the document announcing the SEC fee rate change:

 

http://www.sec.gov/rules/other/2009/34-59477.pdf

 

There are SO many seeming inconsistencies, it boggles the mind. Mine, anyway.

1) SEC has a target estimate of $113T (!) equity transaction volume for FY2009. In the first four months of the year, $24T was traded. Thus, they calculate (in collaboration with the OMB) that the entire rest of the year will be only $42T additional traded, thus total for the year will be around $66T.

-- This seems to me to be off by around 10% from the real easy guess of tripling $24T, but I don't have historical cyclical data, won't argue this point.

-- But this is "only" a 40% shortfall (refreshed, more current estimate of $66T is 58% of original $113T target). So if originally they planned to collect $113T / 1M *$5.60 = $637M from these fees, they ended up with $33T / 1M * $5.60 = $185M -- thus they need $452 more in revenues. So for the remainder of the year, $33T / 1M * (new rate) = $452M.

 

EXCEPT the NEW RATE IN THIS EQUATION IS $13.7, little over half of the new declared rate of $25.70. Someone please show me the error in my arithmetic.

 

2) The number of shares traded has not significantly eroded overall compared to 2008 or any other prior period.

http://www.itg.com/trading-volume/quarter/index.php

 

The value of the market dropped by about half from the summer of 2008 when the original FY2009 rate was calculated, and most of it was during Q1FY2009 -- thus we can accept that the traded $ amount was much lower than the projection -- but do we really think that it was really barely more than half (1/3 of the original $113T works out to $37.66) of the original projection, when YOY traded share volume for calendar 4Q2009 was 2B higher than the same period in 2007?

3) While it can be argued that the SEC had no way to know the market would begin a rocketship-like ascent a mere 7 trading days after its announcement of the change in fees, it has come up the 40% from its value on 2/27/2009 (SPX 735). Even if that growth had been linear, it still would generate 20% "extra" revenue from the $volume-based fees.

 

But the rate is ALREADY double what would be necessary to generate the expected SEC coffer-filler. So the extra 20% acts leveraged, thus altogether earning 240% of the originally intended $452M - making more than the benchmark the SEC needs to collect in the last 6 months of FY2009 alone. 

 

Of course, this will merely come OFF next year's fee, right...? 

 

I don't have the answer here, but something just ain't ticking right.

Sun, 08/30/2009 - 00:11 | 53192 D.O.D.
D.O.D.'s picture

Great work CD!

You bring up excellent questions that I think deserve further inspection!

Sun, 08/30/2009 - 00:41 | 53195 CD
CD's picture

Thanks, D.O.D. I was beginning to worry I was the only one up late at night puzzling on these matters...

Sun, 08/30/2009 - 10:23 | 53301 Zippyin Annapolis
Zippyin Annapolis's picture

These are SEC/OEA calculations. As to the asssumptions, why not call them and ask?

 

James Overdahl (SEC Chief Economist) is the man in charge of this task:

 


Office of Economic Analysis:
Current Staff Biographies

James Overdahl (Chief Economist) joined the SEC in August 2007. Prior to joining the Commission, he served as Chief Economist of the Commodity Futures Trading Commission. He received his B.A. degree from St. Olaf College and his Ph.D. in Economics from Iowa State University. He has written extensively on market microstructure, risk management, and investments, and is co-author, with Robert Kolb, of three textbooks, Financial Derivatives, Understanding Futures Markets, and Futures, Options and Swaps.

Do NOT follow this link or you will be banned from the site!