The Politics of the Flash Crash Report

The politics of the Flash Crash report: no laundry list?

I have voiced my disappointment that the report, while putting much meat on the bones of what happened May 6th, failed to provide even a short "laundry list" of recommendations. Why?

The obvious answer is that this was a report from the SEC and CFTC staffs to the Joint Advisory Committee on Emerging Regulatory Issues, and that it would not be appropriate to include recommendations.

Sorry, that's not good enough. This was a high-profile report.

The public is looking for guidance. If it is not appropriate for the staff to submit recommendations, what would prevent the Join Advisory Committee from attaching a cover letter, thanking the staff for its fine work, and saying the Committee will quickly be moving to address the following issues: (list).

The answer, as far as I can see, is nothing. They could have done that. But they didn't. Why not?

The answer, perhaps, lies in the politics. This is a report from the staffs of the CFTC and the SEC. Given the intense rivalry between the CFTC and the SEC, and the fact that one of the main causative factors was a huge eMini sell order (which puts this squarely in the CFTC's domain), maybe all they could agree on is just the bare-bones facts.

Maybe it would be damn tough right now to get Gensler and Schapiro to agree on a clear laundry list. Maybe it's just better to get the damn report out now and we'll worry about the recommendations later.

Maybe Schapiro, by herself, has already told the world what she wants to do. She hinted at it in a speech she gave last week at the Security Traders Association that I attended. Check this link out.

All this makes perfect sense: she talks about tweaking circuit breakers, more trading obligations for high-frequency firms, concerns about too many exchanges and trading venues, and whether there needs to be more controls on liquidity-seeking algorithms.

Wish it was in the cover letter!

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