Regulators seek to end stock market skinny dipping

TEXT OF STORY

JEREMY HOBSON: Regulators at the Securities and Exchange Commission say stock market buyers and sellers can no longer jump into the market “naked.” Not that kind of naked. On Wall Street it means trading without the supervision of a regulated middleman.

Marketplace’s Scott Tong joins us now live to explain. Good morning Scott.

SCOTT TONG: Good morning Jeremy.

HOBSON: Scott, what is the SEC trying to do here?

TONG: Regulators are afraid that mistakes can leak into the market when an investor goes in unsupervised, flipping out stock prices. Say human error, computer error, maxxing an investor out his credit limit. Right now the middlemen — broker-dealers — can give investors a special pass to bypass the broker and go directly into the market. That would be the financial skinny dipping. And now the SEC is saying no. Here’s commission chairman Mary Shapiro from the hearing yesterday.

MARY SHAPIRO: I have previously likened this to giving your car keys to a friend who doesn’t have a license and letting them drive unaccompanied. This rule would in effect require that the broker dealer not only remain in the car. But also maintain in control of it. In that way we can make sure the rules of the road will be observed before the car is ever put into drive.

HOBSON: I have this image now of somebody driving naked in a car. But anyway, Scott why are regulators look at this now?

TONG: Remember that Flash Crash. Right, back in May when the Dow plunged 600 points in a few minutes. They’re still sniffing out exactly what happened. But the fear is, the unregulated buyers and sellers who go directly into the market — unsupervised — and make super-fast computerized trades may have accelerated or amplified price swings. So, new rule takes effect in a couple months, the investors will have to go in with their suits on, as it were.

HOBSON: Marketplace’s Scott Tong in Washington, thanks.

TONG: You’re welcome.