08.17.2017
By John D'Antona

SEC’s Clayton Breaks From Tradition

Outward appearances can be deceiving.

And the times, could they be changing?

Just a few weeks ago, the new Chairman of the Securities and Exchange Commission Jay Clayton made his first public speech at the Economic Club of New York. While a Chairman’s prepared remarks are often made available to the press and public by the SEC leaving little to the imagination, his July 12th speech was markedly different.

Clayton broke from his speech several times, making several “off-the-cuff” remarks. That is, he actually gave his opinion on some of his eight principles he outlined would be the focus of the Commission under his leadership. One of the more notable musings was that he suggested that an access fee pilot, more colloquially referred to as “maker-taker” proposal was likely in coming months. According to several people who spoke with Traders Magazine and were at the speech reported Clayton went off script several times, most notably when he was talking about the maker-taker pilot. Clayton’s thoughts ranged from the validity of doing a pilot to making a statement to the effect that ‘liquidity is not free.’

What? Breaking from script? There must be some mistake.

No.

Clayton broke from tradition, perhaps due to the need to be more transparent to Joe Q Public, or the buy-side, or even to Congress and the industry. He spoke freely and openly. And despite early market trepidation, Clayton sounded at times like a trader himself. This is not to say other Chairmen were unknowledgeable or transparent or cared less for the industry – but perhaps new times require a new approach to the 21st century equity market and Clayton wanted to be new.

One attendee said that one could see Clayton’s facial expressions indicated he was really thoughtful about what he was saying and that he spoke in complete trains of thought – not just random musings.

Another point of note from the speech was that the Chairman took and answered questions posed to him. While this unique occurrence wouldn’t be classified as a Q&A session, Clayton did accept the questions and provided answers.

For the entire speech, please click here

Things that make one go, hmmm.

One market structure analyst who spoke on condition of anonymity since his firm didn’t want to be publicly quoted on the SEC or Clayton, did tell Traders Magazine that they were “very pleased” with his first public speech, “especially when it came to his willingness to take questions.”[IMGCAP(1)]

And another market veteran, Bill Harts, CEO of Modern Markets Initiative and 28-year veteran of the equities market was also pleasantly surprised by Clayton’s candid responses, willingness to talk and take questions. According to Harts, and others, this was one of a handful of times a sitting SEC Chairman spoke off script and took any type of questions. Harts told Traders Magazine in a conversation that in his experience on Wall Street, he could only remember the SEC’s Dan Gallagher, while a Commissioner, deviating from prepared remarks and talking “off-the-cuff.”

Barbara Van Allen, President of the New York Economic Club told Traders Magazine that earlier this year outgoing Chairman Mary Jo White took questions also. The Club does require that speakers field questions.

Still, going offf script seems to be more the exception than the norm.

A few times he announced that he was going off-script, such as where he said, ‘Deviation– watch the news tonight,’ or at again later where he says, ‘Another deviation…’” Harts told Traders Magazine. ” I liked the fact that he was willing to speak somewhat extemporaneously. Chair Clayton’s willingness to speak his mind candidly bodes well for those who long for a no-nonsense, straight-talking regulator who will get things done.”

Another professional, a former buy-side trader who has also spent time on the sell-side with 31 years in the equity markets, who viewed the speech on C-SPAN in its entirety agreed with Harts that he’d never seen anything like Clayton’s speech. From the SEC Chair Clayton’s deviation from the script to the question and answer session, the trader said that he too was pleased with the amount of transparency and market structure knowledge that the speech and after remarks represented.

“As I watched Clayton he seemed fully in command of himself and his remarks – both prepared and not,’ the trader began.” You could see that when he paused before answering a question or adding his own spin on something, he’d give it a thoughtful moment before responding. He demonstrated a thorough knowledge of the market structure.”

And that was a lasting impression to many people – he knew the market structure and its problems and wanted to attempt to fix them. Prior to this, many felt that Clayton, whose background was more Wall Street defender than regulator, would have trouble policing the very firms that he once defended. During his Senate confirmation hearings, Clayton reiterated that he was against fraud and “shady abuses” within the financial system. He never uttered anything about fixing the equity market structure or advocating specific ways to examine and fix the system, such as his recommendation for a market access rule pilot.

“He seems genuinely knowledgeable about the value that traders bring to markets,” said Modern Markets’ Harts. “For example, he says, ‘I know–I know–that market professionals are critical to, and enhance the operation of our markets.’ This is a refreshing perspective that we haven’t heard out of Washington in a long time.”

“My sense from seeing/hearing him speak in person, especially when he said, ‘Small deviation…’ was  that he was not too thrilled about doing a maker-taker pilot, but he will do so because there seemed to be broad industry support,” Harts recalled. “The exact line I remember him saying (at 26:35 during the speech) was, ‘Liquidity is not free,’ which again recognizes the value of professional traders.”

And professional traders are recognizing this new approach and like it. In a poll conducted by Traders Magazine, 68% liked Clayton’s new “off-the-cuff” approach to speaking with the industry. Also, 32% of respondents thought it was refreshing to hear his actual thoughts versus prepared statements. No one thought ill of the new approach.

“Overall, SEC Chair Clayton’s remark, ‘liquidity is not free,’ sums up and highlights that he understands the value of professional market makers, especially for retail investors and Main Street,” Harts said. “We look forward to working with him to maximize the amount of liquidity available to investors.”

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