Again, however, politics may also influence Levitt’s approach. Most of the same Wall Street firms that underwrite securities are also involved in trading. But their interests in trading are ably represented in Washington, by the NYSE, whereas each firm is more or less on its own when it comes to lobbying for underwriting efforts. In underwriting, “you don’t have a lot of money concentrated in a single place,” says Peake. In his view, Levitt has a freer hand to pursue reform of the underwriting process, and he’s taken advantage of that freedom.
Some observers suggest that the increasing efficiency and availability of new technology may make the secondary markets more competitive without the SEC’s help. Bradley of American Century says it’s possible that most if not all of the “real issues” facing the regulators “could be technologically competed away” without any change in its approach. Along those lines, Peake predicts that the NYSE might be forced to acquire the Pacific Stock Exchange to compete with Nasdaq, once the Pacific’s systems are integrated with a new electronic trading system known as Optimark. Such a prospect would look even more likely if the Amex’s proposed acquisition by Nasdaq becomes a reality.
That leads some proponents of financial-market reform to applaud Levitt for allowing competition to proceed as far and as fast as it has. “He deserves credit for the fact that it is happening on his watch,” says former SEC commissioner Fleischman.
But the SEC chairman could help bring about more if he pushed harder. And he seems to need some pushing himself. With Wallman no longer around to egg Levitt on and no one else on the commission as committed to reform, reformers are looking to Congress.
Does Congress care enough about reform, and is it sufficiently independent of Wall Street’s influence? Wallman’s ideas have been embraced by key members of the committees on Capitol Hill that oversee the SEC. And they’ve taken Levitt to task for holding meetings with the exchanges over the transition from fractions to a decimal-based pricing system. These members contend that the SEC has no business involving itself in a discussion that has to do with pricing.
But in the absence of public pressure, Congress is unlikely to hold Levitt’s feet much closer to the fire. “These things usually take a crisis,” says Peake. Still, he suggests that competition from foreign exchanges could bring one about. He notes that the Eurobond market fled New York for London in a matter of weeks back in 1962, after President Kennedy imposed a withholding tax on bonds held by foreigners. “If we get to a point where the New York Stock Exchange is no longer competitive with London,” Peake warns, “the U.S. may wake up to find it is no longer the financial capital of the world.”
That day seems distant. But in light of Levitt’s evident hesitation to take on Wall Street over trading, his record as SEC chairman can only be graded “incomplete.” And based on Wallman’s evident commitment to fundamental change on all fronts, he seems better suited to the task of leading the SEC into the next century. Congress, of course, cannot choose between the two men. But it shouldn’t reconfirm Levitt until it’s satisfied that he is no less eager to pursue reform across the board.