Sep. 30, 2008 - Markey: SEC Should Step In to Halt Dangerous Market Volatility
1990 Market Reform Act Spearheaded by Markey Gave SEC Regulatory Powers It Now Ignores
WASHINGTON, D.C. – Following the single biggest point in the history of the Dow Jones Industrial Average, Representative Edward J. Markey (D-MA), former chairman of the House Subcommittee on Telecommunications and Finance during the market turmoil of the late 1980s, sent a letter to Chairman Christopher Cox calling on the Securities and Exchange Commission to take action to prevent dangerous market volatility during this time of financial crisis.
"Americans are still
reeling from the rollercoaster ride of the past few days and economic
uncertainty remains the rule of the day. Volatility in the stock market is
understandable at a time like this, but the SEC has the authority and
responsibility to ensure that this volatility is not exacerbated dangerously by
internal market mechanisms such as program trading which could push this
situation into a free fall," said Rep. Markey.
In 1990, when Rep. Markey was the chairman of the Subcommittee on
Telecommunications and Finance, he was the principal author ofH.R. 3657, the Market Reform Act of 1990, a
bill which President George H.W. Bush signed into law on October 16, 1990 (see
Public Law 101-432). The Market Reform Act included specific authority for the
SEC to "prohibit or constrain, during periods of extraordinary market volatility,
any trading practice...that the Commission determines (A) has previously
contributed significantly to extraordinary levels of volatility that have
threatened the maintenance of fair and orderly markets; and (B) is reasonably
certain to engender such levels of volatility if not prohibited or
constrained."
"Following the 1987
and 1989 market crashes, Congress took steps to ensure that our regulators
would be able to deal with volatiledevelopment in the future - now is the time for those regulators to step
up to the plate," added Rep. Markey.
Rep. Markey's letter also questioned the SEC decision to
allow the New York Stock Exchange (NYSE) to last year repeal a rule, Rule 80A,
designed to slow down index arbitrage trading whenever the market experienced
significant volatility.
"In light of the
current fragility of our nation's financial markets, I request that the
Commission consider immediately ordering the NYSE to reinstate its Rule
80A.If there are other types of trading
strategies that may result in increased volatility in our equities markets, the
SEC and NYSE would be better advised to update and refresh regulations rather
than simply repealing rules restricting one strategy. Congress gave the SEC the
power to address these issue 18 years ago - it's time they use it," concluded
Rep. Markey.
Full text of Rep. Markey's letter is available HERE. (PDF)
