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Former SEC Chair Pitt Predicts Future of Exchanges

Harvey Pitt, former SEC Chair, takes a stab at forecasting the future of stock exchanges in a somewhat serious, somewhat tongue-in-cheek recent piece for the Wall Street Journal. Pitt first notes the seismic changes to stock exchanges over the past two decades that “did not, unfortunately, result from careful planning or ingenious creativity (or even semi-maniacal musings of the technologically gifted).” Instead, the changes were driven by the pursuit of trading profits and regulators’ inability to keep pace.

Pitt predicts that the NYSE will finally relinquish its storied trading floor to a retailer such as Apple instead of continuing its current use as “a virtual media center, serving primarily as the locus of financial reporting broadcasts.” Further, he suggests that consolidation of existing exchanges will continue, particularly through acquisitions by non-securities financial exchanges. Lastly, Pitt foresees “an unprecedented failure of software governing stock-exchange trading,” that will inevitably lead to “‘Son of Dodd-Frank,’ a 3,000-page statute claiming to prevent future stock-exchange meltdowns, while imposing unrelated social-agenda obligations on corporate managers and others endeavoring to keep capitalism alive.”

Looking to regulators, he posits that the FSOC will turn its eye to the exchanges “citing its already overused pretension that these markets, like asset managers, present systemic risk dangers.” The SEC, he suggests, will be unable to achieve a regulatory overhaul after a decades-long piecemeal approach. He reasons that any thorough study of the necessary changes would outlive the terms of the commissioners who are, in any event, unlikely to achieve a “pragmatic consensus.” Additionally, exchanges are now “irreversibly global, making national solutions much like reading yesterday’s Wall Street Journal—interesting, but already overtaken by reports in today’s Journal.” Lastly, he suggests that the regulation of exchanges will be split into two segments – one for retail transactions and one for institutional-size orders – due to the mismatch of applying retail-type rules to institutional traders.