Can the SEC Save Civilization?
By Steven Wunsch, Progress Wunsch Auction Associates, LLC
Originally published on Tabb Forum
The disintegration of our stock market into chaotic fragmentation is paradigmatic of the disintegration of Western society generally. And the cacophony of market structure voices – as evidenced in the debates on TabbFORUM, the SEC's comment period debates, and similar debates around the world – is not likely to produce solutions any more than Stalin's five-year plans solved the Soviet Union’s problems. But we've got to start somewhere.
Now comes the news that the SEC wants more money and authority. After all the money spent creating the current chaos, the Commission says it needs much more, presumably to do much more of the same.
High-frequency trading, and the plethora of new rules, technology and staff the SEC proposes to deal with it – the Large Trader Rule; the Consolidated Audit Trail; the Market Access Rule; the Midas computer system; Limit-Up/Limit-Down; the Systems, Compliance and Integrity Rule, etc. – may be mysteries to the world at large, but not to readers of TabbFORUM. HFT is a feature of the SEC's National Market System that didn't exist before, and it is growing more complex and confusing as the SEC creates new rules and policies to control it. The more the SEC intervenes, the worse the problem seems to get.
There are other examples where government-imposed fairness and redistribution are producing chaos, areas that on the surface may seem more amenable to understanding by the public and therefore more amenable to being addressed by policy changes. The gender fluidity that began with feminism, for example, now finds some parents chemically blocking their children's puberty until they can make decisions on a rapidly proliferating array of gender selection options, which are no longer just male or female, or even straight or gay; rather, if a child is gay, whether to undergo surgical gender modification or not, and which orientation to adopt or present to the world, in public or private. [The New Yorker, “About a Boy: Transgender surgery at sixteen,” Margaret Talbot, March 18, 2013]
That simple women's equality would transform into gender chaos was not expected. But such results are always unexpected, because they are bound to spin out of the control of their initially well-intentioned founders as conflicting claims erupt over civil rights or redistributions of the economic pie. Because of the heated emotions in such battles, these are unlikely places in which to begin to reel government back in.
High-frequency trading and the National Market System, on the other hand, are good places to begin. While the HFT issue may be visible in detail only to market structure types like those who read TabbFORUM, readers and non-readers alike can recognize the unseemly grasp for more power and money by the SEC. As a result, reining in the SEC may be more possible than we imagine, if for no other reason than that there are no generally recognizable civil rights or redistribution issues involved.
Regardless of one's market sophistication, it is easy enough to see that the SEC's National Market System created HFT and all the ancillary problems associated with it – the Flash Crash, the Facebook IPO, the Knightmare on Wall Street. It is also clear that before NMS, the US stock market provided average investors unparalleled opportunities to participate in the growth of American businesses, and that it provided those businesses and the technologies they introduced unparalleled opportunities to get funded and to get started. It no longer provides these benefits with anything remotely resembling its previous power.
In an age of deficits as far as the eye can see, it would be very unwise to give more money to the SEC. But beyond the money, granting government the power to reorder naturally evolved structures that have endured for decades, centuries or millennia, as stock markets have, is unwise beyond belief.