Why hasn’t Levitt pushed the NYSE to embrace competition as hard as he has the NASD? Some suggest that personal experience has blinded him to the flaws of traditional exchanges. Levitt spent almost three decades on Wall Street, starting as a stockbroker in 1963 with the firm that would eventually become Salomon Smith Barney. And he left Wall Street as a millionaire in 1989, when he stepped down as chairman of the American Stock Exchange. (He used some of his money to buy Roll Call, a newspaper that covers Capitol Hill, and then sold it to The Economist Newspaper Group Inc., which owns CFO, after Clinton tapped him for the SEC in 1993.)
“He’s shed his affiliation with the industry to a great extent,” says Morris Mendelson, professor emeritus of finance at the University of Pennsylvania, “but that’s not to say he’s not influenced by his experience.” That’s apparent, Peake of the University of Northern Colorado contends, in disputes that Levitt had with Steven Wallman, who left the SEC last October after serving three and a half years as commissioner. Wallman was clearly one of the most outspoken proponents of financial market reform within the SEC in recent history, often vigorously and publicly arguing that the commission needed to take a more flexible regulatory approach to spur innovation and competition.
Based on reports from people who have worked with the two men, observers say Wallman’s reformist zeal did not sit well with Levitt. Not that these observers are surprised. From July 1995 until February 1996, Wallman and Levitt held the only two occupied seats on the five-member commission, which meant that “Arthur couldn’t do anything policywise without getting Steve on board,” says former commissioner Fleischman. “And while Steve was reasonably deferential, the chairman couldn’t have been very happy with the situation.”
Levitt responds that Wallman and he “are in total agreement that we must encourage competition between alternative and traditional markets.” And he describes Wallman as “a creative and forward-looking thinker” who contributed “tremendous energy and commitment during his tenure.”
For his part, Wallman vigorously denies reports of tension between Levitt and himself. “Arthur and I were very complementary,” Wallman says. Yet Wallman reiterates his oft-stated view that the commission should become much more flexible in its approach.
One is therefore left wondering what accounts for Levitt’s greater receptivity to changes in underwriting than in trading. A possible explanation, says Peake, is that reducing the traditional role of Wall Street in the former would cut its fees, helping issuers raise that much more capital, which he says is a higher priority for the SEC than it likes to admit. Underwriting is also a simpler activity to oversee than trading. The SEC’s approach to underwriting is based almost entirely on disclosure, whereas the commission finds itself micromanaging a very complicated trading system. In other words, there’s much less the SEC has to do to free underwriting from Wall Street’s domination than to free trading.