The Legacy of Mary Jo White

Mary Jo White became the 31st Chair of the Securities and Exchange Commission on April 10, 2013. I wrote quite a bit about her before, and after, I became a reporter for MarketWatch.

Last week she announced she would be leaving the job, with two years left in her term, when President Obama leaves office in January.

At a hearing of the House Financial Services Committee, where White presented the agency’s proposed budget, members took the opportunity to applaud her tenure, to try to get her to answer a few last questions, and to try to get her to agree not to do much more before she leaves.

Rep. Maxine Waters, a Democrat from California and that party’s ranking member,  had an interesting interchange with White about some work she did when White was a former defense attorney.

Waters remarked that Chairwoman White probably had no interest in serving President-elect Trump because she had seen the “true character of Donald Trump” during her legal defense of journalist Timothy O’Brien, then a business reporter for the New York Times when Trump sued him over his 2005 book, “TrumpNation: The Art of Being the Donald.”

Waters had asked White if she could tell the hearing about the true nature of Trump’s character, based on her involvement in the case, including arguing the appeal on behalf of O’Brien. White demurred, saying she did defend O’Brien but that it would be inappropriate for her to comment on any of the details of the case.

White later told another member that it was a custom for agency heads to leave when a new administration comes in.

At the hearing, Waters and other Democrats also pressed White to update them on the Wells Fargo investigation. They fear that a Trump administration will shut down all inquiries from the myriad of state and federal agencies and law enforcement officials who are investigating and investigating and trying to determine which executives or board members are responsible.

Rep. Waters was very vocal at the hearing. She is concerned that any further investigation or sanctions against Wells Fargo and its executives will be dropped by the new administration and four new SEC commissioners that will be named once Donald Trump takes office. “Just yesterday Wells Fargo shares closed at their highest price this year,” said Waters, “on the expectation that the Trump administration and a Republican-dominated Congress will erase its culpability.”

Two members wanted White to commit not to bring any Dodd-Frank rules that have not yet been approved by the SEC to a vote before she leaves.

Two Republicans, Rep. Bill Huizenga from Michigan and Rep. Sean Duffy of Wisconsin, tried to get White to commit to not bring any remaining Dodd-Frank rules, such as one that expands the Sarbanes-Oxley compensation clawback provisions and another that cover hedging transactions by executives, to a vote if they are ready in the next two months.

White, however, would not make any promises.   She told the committee she won’t “judge the next two months in a vacuum.”

Another issue that came up quite a bit during the hearing seemed to have less to do with Mary Jo White and more to do with Rep. Jeb Hensarling’s desire to tee up his leadership of the repeal of Dodd-Frank, specificaly the Volcker Rule, and to soften the Basel bank capital requirements for smaller banks.

Hensarling’s first question to White  at a Tuesday hearing focused on what he characterized as “significant tension” regarding liquidity concerns in the fixed income markets. But rather than worry about the well-documented concerns about liquidity in the U.S. Treasury market, after the August 2015 market volatility event,  Hensarling and his Republican colleagues are fixated on the perceived difficulties big banks and high-frequency trading firms are having trading corporate bonds.

The Volcker rule bans most proprietary trading by banks, but allows banks to continue to hold and trade U.S. Treasury securities and municipal securities for their own account. The rule bans certain relationships by banks with hedge funds and private equity funds but exempts bank market-making that serves clients. The Basel rules use a risk-weighted assets method for determining bank capital requirements and has strong bipartisan political support from everyone but the banks. Treasury securities and municipal debt are considered Level I assets, the least risk of all assets held by a bank and, therefore, banks are encouraged by regulators to hold and trade in them.

Hensarling and other Republicans repeatedly invoked remarks made by former Treasury Secretary Hank Paulsen, by the CEO of high frequency trading firm Virtu, and some stories in media outlets to argue that big banks and their broker-dealers had slowed trading in the corporate bond market because of Dodd-Frank’s Volcker Rule and Basel bank capital requirements.

But White told the Congressmen the jury was still out on whether there was even a problem.

Her remarks were echoed by Fed Vice Chairman Stanley Fischer spoke at the Brookings Institution on the same day and told the audience, there to talk about market liquidity, “the evidence presented in these two figures seems to suggest that market liquidity has not deteriorated in recent years…”  He concluded his remarks by saying:

“Overall, liquidity is adequate by most measures, in most markets, and most of the time.18 Bid-ask spreads and price-impact measures point toward liquidity that is good by historical standards, and we have not observed declines in market liquidity in recent episodes of high market volatility. Nevertheless, the market structure is changing, and trades in certain situations and in certain market segments might have become more costly.”

18. I thank Jerome Powell for this statement. Return to text

Sounds like good old capitalism to me.  In fact, if corporate bond trading is drying up, and banks and investment firms are afraid to trade or can’t trade well especially in distressed debt then how did a Goldman Sachs trader make $100 million in just a few moths recently doing just that?

It looks like proprietary trading. It walks and talks like proprietary trading. A Goldman Sachs junk-bond trader earned more than $100 million in profits buying and selling distressed corporate debt earlier this year, but according to a Wall Street Journal report on Wednesday, the trades don’t violate the so-called Volcker Rule because the trader is a market-maker not a soon-to-be prohibited proprietary trader.

The Volcker Rule isn’t yet in effect. In July, the Federal Reserve said it would extend the deadline for banks to comply with the Volcker Rule until the middle of 2017, seven years after the Dodd-Frank law was first passed.

Not everyone has been full of praise for Mary Jo White during her tenure.

What Warren really is asking Obama in her latest anti-White salvo

In a letter on Friday, Warren asked Obama to replace Mary Jo White as chairwoman of the SEC , after she said, trying several times to publicly and privately persuade White “to direct the agency’s resources toward pressing matters of compelling interest to investors and the public, and toward completing those rules that Congress has required it to implement.”

Also read:White asks Obama to fire SEC chief White

 Schumer says SEC’s White is ‘poisoning’ politics

Senator Charles Schumer, Democrat of New York, joined Massachusetts Democrat Elizabeth Warren in strongly criticizing the leadership of Securities and Exchange Commission Chairwoman Mary Jo White on Tuesday.

White appeared before the Senate’s Committee on Banking, Housing and Urban Affairs to answer questions regarding the SEC’s progress on several issues, but it was White’s refusal to reconsider her position on mandated disclosure of corporate political spending that raised Schumer’s hackles.

Schumer spent almost his entire allotted time lambasting White for taking what he said was proposed rulemaking from the SEC’s so-called reg-flex agenda. “You are hurting America. I wish you would change your mind. I am so disappointed,” said Schumer. White said that there were a number of items on the agenda when she came on board in early 2013 but the list tends to be “aspirational” rather than binding on the agency.

Elizabeth Warren previously implored Mary Jo White to shift her priorities directly back in June 2015.

In a 13-page letter sent to White on Tuesday, Warren cites four main complaints with White’s two-year tenure:

•The SEC’s failure to finalize Dodd-Frank rules regarding disclosure of CEO pay to median workers.

• White’s failure to curb the use of waivers for companies that violate securities laws. Several firms received a waiver after pleading guilty to Justice Department charges of manipulating the foreign exchange market.

Also see: SEC underwriting privileges persist amid bank criminal pleas

• SEC settlements that don’t require an admission of guilt.

• Numerous SEC enforcement cases that require recusals by White because of conflicts from her prior law firm employment and her husband’s current law practice. Warren even suggests companies may deliberately hire her husband, John White, to lead to a recusal and a 2-to-2 deadlock of remaining commissioners.

And then there was the ongoing drama between the SEC under Mary Jo White and the PCAOB under Jim Doty.

Who would have thought that Doty could outlast White on the job?

 The SEC vs. The PCAOB and Jim Doty: Impasse or Détente?

Jim Doty is still on the job and told Patrick Temple-West of Politico in a recent interview that he plans to stay.

The Washington DC cognoscenti are divided about how that might happen.  I am sure he will stay too, for now.  But it’s a fifty-fifty bet whether it’s going to be because Mary Jo White actually reappoints him or if she just lets him squirm in limbo, neither appointing him nor anyone else in the next year, until both President Obama’s term is up and she is asked to step down by Obama’s successor.