RIIA Meeting: NYSE Chair Marsh Carter Mulls Risk Management vs. Technology's Pace

Carter concerned that oversight will be lost in flurry of trades

Marsh Carter, the Chairman of the New York Stock Exchange Group, regaled the retirement income community with the wonders of technology, but lamented that risk management has failed to keep pace. Delivering the keynote address of the annual meeting of the Retirement Income Industry Association on Tuesday, Carter noted that it took between nine and 14 seconds to execute a trade when he got his start in the financial services industry in 1976. Today that trade takes less than 10 milliseconds.

The cost of a trade, once a princely sum, is going to one-tenth of a penny, he said. At a time when NYSE runs two data centers — one in Europe, the other in the United States — each 400,000 square feet, or twice the size of the amply apportioned hotel where Carter delivered his address, the markets lack the necessary oversight to preserve market stability in the event of a severe crisis.

The May 6 “flash crash” was a case in point. Sometimes, Carter said, “you need to take the plane off auto-pilot if you’re going to bring it home safely.” A recent cyber attack on the exchange was another example of inadequate risk management. It took the government 45 hours to inform the exchange of the assault.

Given the speed and sophistication of cybercriminals or high frequency traders who Carter says are endangering market stability, Carter says the markets need safeguards, including the ability to slow down trading when significant price movements occur. He also called for improved market regulation, arguing the NYSE is no longer the public “utility” it once was but an exchange competing with other exchanges in need of a level playing ground that only the SEC can provide.

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