Money Power: SEC chairman says markets must be fair
BY KIPLINGER'S Money Power
Saturday, April 14, 2012
4/14/12 at 5:15 AM
Kiplinger's Personal Finance recently interviewed Mary Schapiro, chairman of the Securities and Exchange Commission.
In the past 10 years, we've gone through the financial crisis, two severe bear markets, the "flash crash" and Bernie Madoff. How can you convince individual investors that the game isn't rigged?
For me, a lot of it was crystallized by the flash crash in May 2010. The idea that the very infrastructure of the market itself could cause the stocks of great companies to go from $40 to 2 cents was just beyond anybody's imagination.
What's the likelihood of a recurrence of the flash crash?
I can't predict that. But the fact that the markets must take a time-out if there's been a dramatic move is a fundamental change. We've asked a lot of questions about high-frequency trading. Because at the end of the day, if the markets aren't serving their true function - which is as a place to raise capital for companies to create jobs, build factories, manufacture products - what's the point of markets?
Do exchange-traded funds contribute significantly to market volatility?
ETFs started out as plain-vanilla products, but they've morphed into highly complex products. It's incumbent on us to take a careful look at how they're sold, whether people understand all of their iterations and what their impact is on the market.
Why are you so concerned about money market funds?
Money market funds have a structural weakness. They're priced at a dollar per share, but they're not always worth a dollar. That creates the potential for runs because large institutions understand that if there's a problem with a money market fund, they'll get their money out quickly, while the losses will be concentrated in assets held by slower-moving retail customers.
Should mutual fund investors still be paying 12b-1 fees?
Investors need to be told what they're paying for and that these fees to compensate brokers are being deducted from their funds. We've also proposed a cap on the fees, so that a fund couldn't charge more than the equivalent of what it would charge with a front-end commission.
What are you most proud of during your tenure?
I'm proud of the way the agency supports investors in many different ways. Our corporation finance division has been aggressive about disclosure... It won't let potential public companies get away with creative accounting. The enforcement division is bringing ... cases across a wide range: market manipulation, insider trading, accounting fraud.
Original Print Headline: SEC chairman on market fairness