This Cop's Beat Is Wall Street

Canellos spoke with Bloomberg Television's Suzanne O'Halloran about the SEC's efforts to keep up with changing markets. Below are edited highlights of their talk.

What has been your main priority?
To reorient our examination and enforcement program to some areas that have not been the traditional focus of SEC work. Traditionally, the SEC has placed a great deal of emphasis on retail investors. We are very much trying to focus on areas outside that sphere, on products that are traded by and sold to institutional investors...like collateralized debt obligations and residential mortgage-backed securities. I don't think the SEC is willing to assume [that] because a product is sold to institutional investors we should be less concerned about it.

Will we see more cases like the one against Goldman Sachs?
This office is conducting a major national sweep of collateral managers of CDOs to evaluate how they handled their responsibilities to their investors. The sweep encompasses more than 50 managers. I wouldn't want to predict which cases will and won't be brought; every case will be examined on its own merits. But it gives you the sense of the intensity of our efforts in this area.

You've said that enforcement hasn't kept pace with Wall Street's rising assets under management.
I am very concerned that hundreds and hundreds of registered financial institutions have never been examined by the SEC because of acute resource constraints. In some respects we are acting as a cop on the beat, so it is very important that these institutions be aware of our presence.

We are hiring about 40 new staff, about a 10 percent increase. Given the current conditions in the market, there are many people we are in a position to hire who otherwise we might not be in a position to hire. Another important priority for me is that our office is trial-ready, capable of taking on tough cases and prosecuting them effectively.

The 1,000-point drop on May 6 highlights the market's complexity. How are you addressing that?
We have added to our New York exam staff two experts in market structure, including dark pools and other alternative trading systems. We are in the process of seeking an expert on algorithmic trading. We have conducted training in current market structure for the entire staff. We have dedicated 10 enforcement staff to specializing solely in market abuses, and we're conducting a number of investigations of alternative trading systems.

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