Ruder Reports ‘Progress’ on Stock Market Reforms

Securities and Exchange Commission Chairman David S. Ruder has told a Senate committee that “considerable progress has been made” by the major stock exchanges to improve their technical and emergency systems in the aftermath of the October market crisis.

But in a letter and memorandum to Senate Banking Committee Chairman William Proxmire (D-Wis.), the SEC postponed taking a position on the most controversial policy issues to emerge in the debate over financial market reform. Ruder said he would submit the SEC’s position on those issues within two weeks.

Congressional and lobbying sources said the SEC is wrestling with whether to propose legislation to obtain authority to regulate stock index futures. The issue has divided the five-member commission and produced disputes between the major financial exchanges in New York and Chicago.

Stock index futures are regulated by the Commodity Futures Trading Commission, while stocks and other securities are regulated by the SEC. Some members of Congress, as well as the presidentially appointed Brady Commission, which investigated the causes of the October market collapse, have recommended consolidating stocks and stock index futures regulation with one government overseer.

Charles Seeger, vice president of the Chicago Mercantile Exchange, which opposes the idea of consolidated regulation, said the SEC had postponed recommending legislation because “there is a division in thinking (at the commission) as to what is the appropriate response. That, I think, is part of the delay and the other part is that these are intricate questions.”

Ruder’s public positions on divisive issues such as stock futures regulation and the amount of margin, or down payment, that should be required of investors in the futures markets have been supported by narrow 3 to 2 votes at the SEC. Congressional and lobbying sources said it wasn’t clear whether Ruder would hold his majority while attempting to recommend specific legislative proposals.

The Commodity Futures Trading Commission and the Federal Reserve are also supposed to make legislative recommendations to the Senate Banking Committee later this month. The sources said the CFTC is expected to recommend that no legislation be adopted, but that regulatory and self-regulatory reforms be pursued instead.

The SEC reported that the New York and American stock exchanges have pursued vigorous reviews of the performance of their market makers during the October collapse. Some stock exchange market makers, also known as specialists, have been criticized by the SEC for failing to maintain an orderly market during the crisis.

The SEC memo said the Amex has undertaken a review of 70 stocks and 16 specialists at the exchange. As previously reported, the Amex has already reallocated two stocks because of erratic trading last October.