Less is more, they sometimes say – except, of course, when less is less.
More or less.
Investors can only hope
that less – fewer regulators in this case – will be more effective when
it comes to shutting down securities scams and disciplining rogue
brokers.
NASD and NYSE Group,
Inc. (otherwise known as the New York Stock Exchange) recently announced
plans to consolidate their regulation efforts by creating a single
self-regulatory organization (SRO) with oversight responsibility for all
securities brokers and dealers doing business in the United States. Regulators aim to increase efficiency and consistency and reduce costs.
This new entity has an
extensive agenda, which includes regulation of securities firms;
professional training, testing and licensing of registered
representatives; and oversight of NASD's Alternative Display Facility,
OTC Bulletin Board, and Trade Reporting Facility. The new organization will include NASD's current 2,400 person staff and approximately 470 folks employed by NYSE Regulation. NYSE will not, however, be surrendering all of its self-regulatory functions or deferring completely to the NASD dominated unit. NYSE
Regulation will continue to oversee market surveillance and listed
company compliance at the New York Stock Exchange and NYSE Arca the
hybrid created by the NYSE and Archipelago).
The consolidation has
been blessed by SEC Chairman, Christopher Cox, who believes that uniform
rules and united oversight will enhance investor protection. That, we agree, is the appropriate goal. But will this marriage of convenience operate to eradicate the securities frauds that plague investors? Will consolidation thrive where competition apparently failed? The
new Uber regulator will need a clear agenda, a strong mandate, and the
authority to operate effectively – even if feathers are ruffled. And they will be.
The new – as-yet
unnamed regulator might start by looking at the massive proliferation of
spam messages from stock promoters, and seeking answers to some of
these questions:
- Who is distributing millions of spam emails urging investors to buy virtually worthless penny stocks? This much we do know: the people behind the spam stand to profit from those stocks going up, or going down.
- Where do the spams originate? The Internet has made it possible for communications to circumnavigate the globe, bounce from nation to nation, and land in our email. The promoters are touting companies that trade on U.S. markets but their messages may be sent from Canada or Kazakhstan; Rhode Island or Russia – or anywhere in between.
- Who is behind the spam campaigns? And, as a related issue, where is the money going? Do stock profits fund organized crimes, terrorisms or greedy stock hustlers?
- How are these schemes facilitated by U.S. companies that dump unregistered shares abroad or into the hands of criminals – and why do we continue to have securities laws that permit this to happen?
Answering these questions will not be an easy task. The people who orchestrate stock schemes, and the interests they represent, have taken refuge in the ether of cyberspace. Consolidation, alone, is not the solution. The international flavor of securities fraud cries out for cohesive cooperative among securities regulators around the globe.
That could provide the
most daunting challenge of all; stock scam artists long ago mastered the
art of playing one jurisdiction against another. On a smaller scale, boiler room brokers in the U.S. have tended to set up shop in one state and sell stock to citizens of other states. That
way they avoid offending the regulators of their host state, and in
that way prolong their existence while their local regulators focus on
problems that face local investors – who are also local voters.
On a global scale, boiler rooms play the same game; operators in Thailand sell stock in Australia
– avoiding confrontation with nearby regulators and frustrating those
whose reach does not extend far enough to snuff out the scams.
Just imagine how these scenarios are compounded by the Internet.
It is an international problem with global implications. Streamlining U.S. regulators may achieve a number of admirable goals – but it will take more than an Army of One to win this war.
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