CBOE's Brodsky weighs in on the regulatory landscape - SmartBrief

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CBOE’s Brodsky weighs in on the regulatory landscape

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Modern Money

CBOE Holdings Chairman and CEO William Brodsky says increased certainty about the Dodd-Frank Act should allow regulators to sharpen their focus in the near future, but that doesn’t mean he isn’t concerned about other issues facing the financial sector. During the CBOE Risk Management Conference, Brodsky addressed a proposed financial-transaction tax in Europe and the U.S. He also commented on how he sees the agenda for the Securities and Exchange Commission taking shape after its change in leadership.

Transaction tax

Brodsky expressed concern that 11 EU countries aim to implement a financial-transaction tax that is intended to have extraterritorial reach.

“Several European countries want to stick it to the financial sector by having what is known as the Tobin tax. … It is a way of making banks pay for the misdeeds of the past,” Brodsky said.

Brodsky also noted that two U.S. lawmakers, Rep. Peter DeFazio, D-Ore., and Sen. Tom Harkin, D-Iowa, have introduced a bill to tax securities and derivatives transactions. However, Brodsky said recent conversations with former acting Treasury Secretary Neal Wolin revealed that Wolin, like his predecessor, Timothy Geithner, is against such a tax. Brodsky said Wolin indicated the Treasury Department is working with Congress to prevent a transaction tax from becoming law.

“At a time when the market structure is very changed from the way it was years ago, I worry about liquidity. … Many of you … understand how important it is to have liquidity to get things done,” Brodsky said. “To have things that throw sand in the gears is not very helpful.”

Brodsky reminded conference participants that a transaction tax seems redundant. “We already have a transaction tax,” he said. “It’s called Section 31 fees. It has been around for decades. If you look at any transaction you do … you pay a Section 31 fee that although it doesn’t go directly to the SEC, it is intended to fund the SEC.”

More certainty at the SEC

Brodsky said the political composition of the SEC might change slightly, with a new chairman and new commissioners set to come on board, but he expects the agenda to focus on three key issues in the near term.

  1. Insider trading: Brodsky thinks an insider trading investigation related to H.J. Heinz options indicates insider trading still threatens financial markets.
  2. Dodd-Frank completion: Given Democrats’ control of the Senate, Brodsky doesn’t expect any significant change to the law. He expects the removal of that uncertainty to make it easier for the SEC to focus on finalizing rules.
  3. Market structure: Brodsky said high-frequency trading, dark pools and issues lingering from the “flash crash” should be priorities for the SEC. Brodsky vowed that the exchange industry will make a “major effort” during the next two or three years to advance guidelines for a consolidated audit trail.