United States Government Accountability Office GAO November 2011_part4 pot

Management’s Discussion and Analysis Page 33 GAO-12-219 SEC’s Financial Statements for Fiscal Years 2011 and 2010 OIA also created and led a Task Force on International Implementation – an intra-agency task force coordinating the international aspects of the Dodd-Frank Act. The Task Force’s work is diminishing the risk that Dodd-Frank Act regulation will con ict with regulations in other countries, and create the potential for regulatory arbitrage. The Of ce of Investor Education and Advocacy (OIEA) redesigned and expanded its investor.gov website, adding information on a variety of topics, and materials aimed at the particular needs of speci c groups, such as service members, teachers and retirees. OIEA completed a Dodd-Frank Act study on ways to improve investors’ access to registration information about investment professionals. In addition, it began a multi-part study on  nancial literacy among retail investors underway. A Critical Market Response: May 6th and Market Con dence In 2011, the SEC continued efforts to address the unusual market volatility that occurred on May 6, 2010. At 2:42 on the afternoon of May 6, 2010, stock prices on U.S. exchanges began to fall with almost unprecedented speed – 573 points in  ve minutes – leaving the nation’s most prominent stock index down over 900 points from the previous day’s close. At the worst end of the spectrum, more than 300 securities suffered declines of more than 60 percent. And then, just as suddenly, the markets reversed themselves, recovering to pre-crash levels within minutes. These unusual price swings caused signi cant harm to many investors, including those who lost money when “stop loss” programs led to automatic selling during the dramatic – but quickly reversed – decline. In addition to  nancial losses, the sudden disruptions also delivered a signi cant blow to the con dence of investors of all types – individual retail investors, large institutions and all those in between. Recognizing the signi cance of the market’s unusual  uctuations, the SEC acted immediately, working with the exchanges, FINRA and the Commodity Futures Trading Commission (CFTC) to determine causes of the volatility and to take action to reduce the possibility of other, similar, events occurring in the future. Beginning in May 2010, the SEC – spearheaded by the Division of Trading and Markets – joined with FINRA and the exchanges to propose the single-stock circuit breakers which would ultimately be applied to most U.S. equity securities. On October 1, 2010, staffs of the SEC and CFTC presented a comprehensive analysis of the causes and consequence of the May 6 volatility, as the SEC’s efforts to enhance market integrity continued into the new  scal year. In 2011, the SEC adopted a rule effectively prohibiting • brokers and dealers from offering customers “un ltered” or “naked” access to the exchanges by requiring that risk controls – designed to prevent inadvertent risk threats to market stability – be in place before access is provided. The rule requires brokers to put in place risk management controls and supervisory procedures to help prevent erroneous orders, ensure compliance with regulatory requirements, and enforce pre-set credit or capital thresholds. The SEC approved rules proposed by FINRA and the • exchanges that provide more certainty regarding the circumstances under which trades will be considered “clearly erroneous” and canceled. After May 6, a variety of market participants reported that the uncertainty over which trades would be canceled contributed to participants’ decision to withdraw from trading, further exacerbating the market’s volatility. The SEC also approved rules proposed by FINRA and • the exchanges requiring that market makers maintain a 20 2011 PERFORMANCE AND ACCOUNTABILITY REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS “ c l ear l y erroneous ” an d cance l e d . Af ter M ay 6, a var i ety o f mar k et part i c i pants reporte d t h at t h e uncerta i nty o v e r w hich tr ades w ould be ca n celed co ntr ibu t ed t o p art i c i pants ’ d ec i s i on to w i t hd raw f rom tra di ng, f urt h e r exacer b at i ng t h e mar k et ’ s vo l at ili ty. The SEC also approved rules proposed by FINRA and • the exchanges requiring that market makers maintain a 2 0 2 0 11 PERF O RMAN C E AND A CCOU NTABILITY REP O R T M ANA G EMENT’ S DI SCUSS I O N AND ANALY S I S O IA a l so c r ea t ed a n d l ed a T as k F o r ce o n Int e rn a ti o n a l I mp l ementat i on – an i ntra-a g ency tas k f orce coor di nat i n g t h e i nternat i ona l as p ects o f t h e D o dd - F ran k A ct. Th e T as k F orce ’ s wor k i s di m i n i s hi n g t h e r i s k t h at D o dd - F ran k A ct re g u l at i on w ill con  i ct w i t h re g u l at i ons i n ot h er countr i es, an d create t h e potent i a l f or re g u l atory ar bi tra g e. T h e O f ce of Investor Education and Advocac y ( OIEA ) redesigned and expanded its investor.gov website, adding information on a variety of topics, and materials aimed at the particular needs of speci c groups, such as service members, teachers and retirees. OIEA completed a Dodd-Frank Act s tudy on ways to improve investors’ access to registration information about investment professionals. In addition, it began a multi-part study on  nancial literacy among retail investors underway. A Critical Market Response: M ay 6th and Market Con denc e I n 2011 , the S E C continued efforts to address the unusual mar k et vo l at ili ty t h at occurre d on M ay 6, 2010. A t 2:42 on the afternoon of May 6, 2010, stock prices on U .S. exchanges began to fall with almost unprecedented s peed – 573 points in  ve minutes – leaving the nation’s most prominent stock index down over 900 points from the previous day’s close. At the worst end of the spectrum, more than 300 securities suffered declines of more than 60 percent. A nd then, just as suddenly, the markets reversed themselves, recovering to pre-crash levels within minutes. T hese unusual price swings caused signi cant harm to many investors, including those who lost money when “stop loss” programs led to automatic selling during the dramatic – but q uickly reversed – decline. In addition to  nancial losses, the s udden disruptions also delivered a signi cant blow to the c on dence of investors of all types – individual retail investors, large institutions and all those in between. R eco g n i z i n g t h e s ig n i cance o f t h e mar k et ’ s unusua l  uctuations, the S E C acted immediately, workin g with the e xchan g es, FINRA and the C ommodity Futures Tradin g C ommission (C FT C) to determine causes of the volatilit y and to ta k e act i on to re d uce t h e p oss ibili t y o f ot h er, s i m il ar, events o ccurr i n g i n t h e f uture. B eginning in May 2010, the S E C – spearheaded by the Di v i s i on o f T ra di ng an d M ar k ets – j o i ne d w i t h FINRA an d t h e e xc h anges to propose t h e s i ng l e-stoc k c i rcu i t b rea k ers w hi c h would ultimately be applied to most U. S . equity securities. O n October 1, 2010, staffs of the SEC and CFTC p resented a com p rehensive anal y sis of the causes and conse q uence o f the Ma y 6 volatilit y , as the SEC’s efforts to enhance market inte g rity continued into the new  scal year . In 2011, the S E C adopted a rule effectively prohibitin g • b ro k ers an d d ea l ers f rom o ff er i n g customers “ un  l tere d” or “ na k e d” access to t h e exc h an g es b y requ i r i n g t h at ri s k contro l s – d es ig ne d to prevent i na d vertent r i s k t h reats to mar k et sta bili t y – b e i n pl ace b e f ore access i s p rov id e d . Th e ru l e re q u i res b ro k ers to p ut i n pl ace r i s k m ana g ement contro l s an d superv i sory proce d ures to h e lp p revent erroneous or d ers, ensure com pli ance w i t h r e g u l atory requ i rements, an d en f orce pre-set cre di t o r ca pi ta l t h res h o ld s . The S E C approved rules proposed by FINRA and the • exc h anges t h at prov id e more certa i nty regar di ng t h e ci r cu m s t a n ces u n de r w hich tr ades w ill be co n side r ed This is trial version www.adultpdf.com . Management’s Discussion and Analysis Page 33 GAO- 12-219 SEC’s Financial Statements for Fiscal Years 2011 and 2010 OIA also created and led a Task Force on International. rules proposed by FINRA and • the exchanges requiring that market makers maintain a 20 2011 PERFORMANCE AND ACCOUNTABILITY REPORT MANAGEMENT’S DISCUSSION AND ANALYSIS “ c l ear l y erroneous ” . among retail investors underway. A Critical Market Response: May 6th and Market Con dence In 2011, the SEC continued efforts to address the unusual market volatility that occurred on May 6,