SEC Names J.P. Morgan Executive as Top Regulator of Exchanges
October 18 2017 - 4:52PM
Dow Jones News
By Dave Michaels
WASHINGTON -- The Securities and Exchange Commission on
Wednesday tapped J.P. Morgan Chase & Co.'s top
electronic-trading executive as a senior regulator, signaling an
appetite for shaking up rules that are blamed for fragmenting
trading across dozens of venues and fomenting the rise of
high-frequency trading.
Brett Redfearn will become the SEC's director of trading and
markets, making him the agency's point person for regulating
exchanges, broker-dealers and high-speed trading firms. As J.P.
Morgan's global head of market structure, Mr. Redfearn has
criticized some exchanges' business models and privileges,
including the legal immunity they enjoy from many lawsuits.
Mr. Redfearn has particularly needled exchanges over their
practice of packaging and selling expensive market-data feeds. The
real-time price reels play a part in high-speed traders' secret
sauce, and many Wall Street banks also buy them to stay
competitive.
"I am particularly interested in market data and market access,
and ensuring we have a very fair and competitive landscape," Mr.
Redfearn said in an interview Wednesday.
Mr. Redfearn, 53 years old, went to Evergreen State College in
Washington state and holds a master's degree in political science
from the New School in New York City. He started his career not on
Wall Street but as an economic development official at the Port
Authority of New York and New Jersey. He joined the American Stock
Exchange in 1996 and in 2004 moved to Bear Stearns Cos., which was
acquired by J.P. Morgan during the 2008 financial crisis.
The J.P. Morgan executive said he would join the SEC soon
without giving a date. He is one of the final top hires of SEC
Chairman Jay Clayton, a Trump administration appointee who took
over the regulator in May.
Mr. Redfearn is part of a wave of Wall Street veterans who have
joined Mr. Clayton's staff, a practice known as the "revolving
door" that accelerated after the agency courted industry experts
after the 2008 crisis. Mr. Clayton earlier hired Alan Cohen,
Goldman Sachs Group Inc. 's former global head of compliance, and
David Metzman, former chief compliance officer of hedge-fund
manager Aurelius Capital Management LP.
Other high-ranking regulators, including Mr. Redfearn's
predecessor as director of trading and markets, have left the SEC
to join Wall Street firms such as trading behemoth Citadel
Securities.
"Brett's extensive markets experience and his longstanding,
active engagement with investors, financial services firms,
exchanges, and the SEC make him exceptionally well-positioned to
lead the Division of Trading and Markets," Mr. Clayton said in a
statement.
Part of Mr. Redfearn's role at J.P. Morgan involved helping
long-term investors such as mutual-fund managers navigate the
Byzantine structure of the stock market. He has been an outspoken
critic of the regulatory privileges -- such as legal immunity --
that stock exchanges maintain despite their move a decade ago to
become for-profit companies.
The feud stems from federal judicial decisions that found
exchanges enjoy limited liability for decisions they make as
operators and regulators of markets. The dispute exploded into the
mainstream in 2012 when brokers complained Nasdaq Inc. didn't
adequately compensate them for losses stemming from the exchange's
botched initial public offering of Facebook Inc.
"Exchanges' immunity and limitations on liability provide
exchanges with an unfair advantage in areas where they are
competing with broker-dealers, alternative trading systems, and
vendors," Mr. Redfearn wrote in testimony prepared for an SEC
advisory committee hearing in April.
His most immediate assignment will be shepherding the SEC's move
to revamp incentives that exchanges offer to attract trading. Many
large investors believe the incentives -- rebates of trading fees
handed back to brokers -- skew where their orders are routed. The
SEC is preparing to propose a pilot program that would reduce the
rebates on a sample of stocks to see if market quality
improves.
A bigger challenge awaits after that. Mr. Clayton has shown an
interest in reconsidering a package of SEC rules passed in 2005,
known as Regulation NMS, which helped disperse stock trading across
more than 50 platforms, including exchanges and private venues
known as dark pools. The fragmentation has caused complexity that
critics say has increased breakdowns and malfunctions.
Mr. Redfearn declined to say whether he would support rule
changes that could rein in the proliferation of U.S. equity
exchanges, now numbering more than a dozen. "Anytime somebody talks
about fragmentation, you are also talking about competition," he
said. "We are in a very pro-competition environment."
"It's going to be important to go back and discuss these issues
with the chairman, the other commissioners and the staff, and see
how we can work together to arrive at some more efficient
outcomes," he added.
Some Republican critics of the rules, including former SEC
Commissioner Paul Atkins, argue the rules also stripped brokers of
discretion for how to best fill clients' orders. Mr. Redfearn
declined to say how he might approach an overhaul of the rules, but
signaled the time is right for an in-depth review.
"It's been 10 years since the implementation of Regulation NMS
and certainly it's time to revisit that set of rules," he said.
"The SEC is more in control of its agenda and it's a good place to
focus on some of these important issues."
Write to Dave Michaels at dave.michaels@wsj.com
(END) Dow Jones Newswires
October 18, 2017 16:37 ET (20:37 GMT)
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