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Collaboration, Cooperation and Oversight

Chair Mary Jo White

2014 SRO Outreach Conference
Washington, D.C.

Sept. 16, 2014

Thank you, Drew.

Good morning everyone. It is a pleasure to see such a great turnout for our third annual SRO Outreach Conference.

The SEC’s relationship with our self-regulatory organizations is extremely important to us and vital to effective regulation of our securities markets. You occupy a unique role in the industry. You establish standards of conduct, enforce rules, and work together, with us, to protect investors and maintain the integrity of our national market system.

And that is why today’s conference is so important. It provides us with a valuable opportunity to come together as regulators to address some of the important issues and challenges we all face. Indeed, the decisions that we make have the potential to shape market structure and affect our national market system. Our markets and the investors and companies they serve are too important not to be constantly and deeply examined for how they can be improved and strengthened.

I think you will find that today’s agenda covers many important topics. The panels, like the first one this morning on “Critical Market Infrastructure,” are exactly the type of issues that we are thinking hard about, and that we should be discussing together. This is a priority area for me. One of the most significant concerns about today’s equity markets is the risk of instability and disruption. Technology can and has increased the efficiency of our markets, but it can also allow severe problems to develop very quickly.

As you know, the SEC and the SROs have, over the past year, closely focused on certain market infrastructure systems with “single points of failure” that can halt or severely disrupt trading when a problem occurs. I know that the SROs have made significant progress in addressing these issues, and that much work still needs to be done. Systems are increasingly complex but, with today’s trading activity measured in microseconds, or even less, the margin for error is razor thin. Every failure makes news, failures invite criticism and, more importantly, failures shake investors’ confidence.

While we know that perfection is not possible, it must always be the goal. We need to have zero tolerance for systems issues that undermine the reliability of our markets and erode investor confidence. We expect your commitment to assess areas of risk — with a particularly sharp focus on critical market infrastructure — and to develop strategies and devote appropriate resources to respond and to mitigate problems promptly and effectively. Many of you are direct competitors of one another, and real-time collaboration among upwards of 20 SROs in response to a market event is challenging, to say the least. Trying to build consensus or make progress on common areas of concern among this many SROs, even if you had the luxury of more time, is also daunting.

Nevertheless, it is critical that SROs develop a collaborative approach, not only with similarly-situated SROs, but also across the landscape of SROs, so that, for example, exchanges and clearing agencies can work toward developing a holistic risk mitigation framework that uses the unique strengths of each to build a robust and resilient infrastructure that can help reduce the number of disruptions that occur in the first place.

I also want to touch briefly on the SRO rule filing process, which is the subject of one of this afternoon’s panel discussions. The SRO rule filing process is critical to proper regulation of our securities markets, and it is one of the cornerstones of the Commission’s oversight role. I know this process requires a great deal of time and effort on your part; it takes a lot of time and attention on our end as well. It is important for you to keep in mind that in order for us to do our job effectively and expeditiously, we need your commitment to devote the necessary resources to produce high quality, clear, and complete rule filings. In an effort to make this important process run as smoothly as possible, one of this afternoon’s panels is devoted to the rule filing requirements applicable to exchanges, FINRA and the MSRB.

You will notice that clearing agencies are not included in that particular panel. There is a reason for that. Four of our registered clearing agencies for which we are the Supervisory Agency have been designated as systemically-important. As a result, under the Dodd-Frank Act, they have an additional filing requirement for proposed changes to rules, procedures or operations that could materially affect the nature or level of risks presented by the clearing agency. This filing requirement, which is referred to as “Advance Notices,” complements the SRO rule filing requirement and enables the Commission to perform an enhanced evaluation of the risks of any such proposed SRO changes. Because of this, we have a breakout panel for clearing agencies this afternoon that will discuss some of the intricacies of the interplay between the SRO rule filing requirement and the Advance Notices filing requirement.

I would also like to speak to you about another cornerstone of the Commission’s oversight role -- our National Examination Program. Your participation in it is essential to our oversight of the financial markets, and is a key component to its success. We know that examinations have become increasingly more complex and, for the organizations that have been designated as systemically important, they have increased in frequency as well. We need your assistance in avoiding delays in scheduling meetings and the production of documents so we can complete these examinations as efficiently as possible.

As we go forward, it is important that you dedicate the resources necessary to enable your organizations to respond to the examination staff’s inquiries and findings as accurately and promptly as possible, and to remediate examination findings as promptly as possible.

The examination process is obviously critical and so, later today, a panel will discuss Market Oversight’s 2014 exam results and its plans for 2015 exams. We are always looking for ways to refine our exam program and make it better, and are very interested in your feedback and suggestions on how we can do that.

We want today’s conference to be interactive. We want to hear what is on your minds just as much as you want to hear what is on ours. So tell us what you are thinking and ask questions. That type of transparency is essential as we work together to protect our investors and continue to make our markets the safest in the world.

Thank you for joining us today and for all you do for investors and our markets. Have a great conference.

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Modified: Sept. 16, 2014