Harvey Pitt, chairman of the Securities and Exchange Commission, used his speech to the Securities Industry Association Annual Meeting in Boca Raton, Florida to praise the securities industry, rather than chiding it as his predecessor, Arthur Levitt often did.

“I am enormously grateful for the wonderful efforts of the securities industry, the leaders of our self-regulatory bodies, and my colleagues on the commission and its staff. The commission reached out to all sectors of the marketplace for ideas concerning the best way to ensure that our markets would reopen with the greatest amount of liquidity possible, consistent with the protection of investors and the national interest. In a remarkable demonstration of elevating the public interest over narrow parochial concerns, all of those with an interest in our markets came together, in partnership and, operating as one, ensured the successful reopening of our equity markets on September 17th.”

Pitt enumerated the lessons learned from that experience:

  • the ability to put aside competitive interests and pull together to make the markets work;
  • communications are key;
  • the breadth and scope of business continuity planning must be expanded;
  • wherever possible, business continuity planning should seek to avoid reliance on single points of failure in critical systems;
  • critical functions need backup capabilities with fail-over functionality allowing rapid recovery; and
  • single points of failure also may arise from business concentrations reflecting economies of scale and specialization of functions.

Looking ahead, Pitt noted that the SEC must make greater use of technological expertise as well as economic analysis, including cost/benefit analyses, in policymaking.

“For many years, the commission has brought principally a legal analysis to issues of market structure. I have nothing against lawyers, of course. But, I do believe that we need to evidence greater reliance on state-of-the-art economic analysis. Over the next several months, it is my hope that we will appoint a highly respected economist to lead our agency in its economic analysis, and help us beef up our economic capacity.” It also intends to create a new position of Chief Technology Officer.

“Finally, I believe that our system of self-regulation has served us particularly well, and I would like us to empower SRO’s to a greater extent to assist us in our regulatory mission.”