Securities and Exchange Commission Chairman Mary L. Schapiro declared Friday that the Wall Street firms her agency is supposed to watch and prevent from disrupting increasingly high-speed digitally driven markets spend far more on technology than the SEC has at its disposal for all its functions.

“A number of the financial firms we regulate spend many times more each year on their technology budgets alone than what we spend on our total operating costs,” she said to the Practising Law Institute in Washington.

The agency, she noted, is working without a new budget for the current fiscal year, but is managing by on a “continuing resolution” passed by Congress. But, she said, that the agency is working on overdrive to get set up to meet requirements of the Dodd-Frank Wall Street Reform Act and its budget falls short of being able to handle what it’s being asked to do.

“Unfortunatley, we’ve been operating under a continuing resolution that has hampered our ability to do what investors and capital markets deserve,’’ she said.

Its new duties include regulating derivatives, hedge fund advisers and credit rating agencies. “It is a strain that will intensify the longer the budget remains at existing levels,” she said.


To see a summary of the numbers of the budget shortfall that the SEC and the Commodity Futures Trading Commission say they face go here.

To see an analysis of what might be coming, to cover the costs of the Dodd-Frank Wall Street Reform Act, go here.


Schapiro noted that, during the past decade, trading volume has more than doubled, the number of investment advisers grew by 50 percent and the funds they manage have increased to $38 trillion and that the SEC’s workforce was cut before the financial crisis began in September 2008 and “had only just been getting back to pre-crisis levels.”

She said the SEC needs a sizable boost in its own technology budget, if it is to begin to oversee algorithmically driven markets, which can go haywire in seconds, as happened in the May 6 Flash Crash.

“We need to ask ourselves if we want our market analysts to continue to use decades-old technology to recreate market events or to monitor trading that occurs at the speed of light,’’ she told the tgathering.

“We need to ask ourselves if we want our chief securities regulator to have to pull the plug on data management systems and on a digital forensics lab needed to recreate the data that sophisticated fraudsters leave on hard drives and iPhones,’’ she said.

Schapiro also said the SEC may need to place controls on algorithms. “Given the potential for trading algorithms to cause severe trading disruptions and shake investor confidence,we also are considering whether they should be subject to appropriate rules and controls,’’ she said.


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