Wednesday, May 7, 2008

SEC Christopher Cox Speech

In the immediate aftermath of the Bear Stearns meltdown — and by immediate, I mean within days — the SEC has focused on the need to change the standards for measuring the adequacy of liquidity in light of the "run on the bank" that Bear experienced. Three days after the Bear transaction, I wrote to the Basel Committee to offer strong support for extending the existing capital adequacy standards to deal explicitly with liquidity risk. And in the ensuing weeks, the SEC has arranged to join with the Basel Committee in this important work. At the same time, without waiting for new internationally accepted standards, the Division of Trading and Markets has strengthened the liquidity requirements for CSE firms relative to their unsecured funding needs. They are closely scrutinizing the secured funding activities of each CSE firm, with a view to lengthening the average term of secured and unsecured funding arrangements. And they are currently obtaining funding and liquidity information for all CSEs on a daily basis, and discussing with CSEs the amount of excess secured funding capacity for less-liquid positions. There will also be more disclosure of actual capital and liquidity positions of the CSE firms in terms that the market can readily understand and digest. The CSEs will institute public disclosure of their capital ratios computed under the Basel Standard later this year, and then phase in additional disclosure related to concentration of exposures.