May 07, 2009

Rick Ketchum CEO of FINRA addressed the attendees of the 13th annual Security Traders Association conference in Washington, DC on Tuesday, focusing on areas where he clearly sees a need for regulation.

Ketchum opened his remarks by discussing the pending Uptick Rule proposal. He quickly changed gears and highlighted other areas where he believes regulation is needed and the SEC will take action.

  • 1. Fill the Gap Areas—Ketchum notes, “We can’t have lived through September and October of last year without understanding that we need some rational and sensible oversight of OTC derivatives. Products with that level of exposure need a regulator whether it be the CFTC or the SEC. He adds that perhaps this is an area that has room for innovation.
  • 2. Hedge fund Industry—Ketchum says, “The hedge funds are a critical party of the market regarding pricing and liquidity, but we are somewhat blind to them in exposure. At a minimum SEC regulation of hedge funds makes sense as we need some level of oversight.”
  • 3. Investment Advisors—Considering the Madoff scandal and all the weekly Ponzi schemes coming to light, Ketchum says, “It is clear that the industry needs one regulator looking at both broker-dealers and investment managers. We can’t have two different standards of regulation. This perhaps is the greatest contribution that can occur. What will actually occur and when, your guess is as good as mine.” However, he notes that the STA has an important role to play by making suggestions to the regulators on how to accomplish this.

    Ketchum also discussed some areas that FINRA continues to think about:

  • 1. Increased Importance of Agency Model —Ketchum notes that proprietary trading and the increased importance of agency business has come to light in this market where firms are willing to take less risk.
  • 2. Algorithmic Trading---Ketchum says that “Algorithmic trading continues to profoundly dominate the market and change it. A greater percentage of volume is executed inhouse and algorithmic trading is a far more significant part of a firm’s business proposition than it had been in the past. Ketchum notes that “firms need to clearly define how they trade that flow and make it clear to customers how they interact with that flow. “