The Securities and Exchange Commission, which regulates trading in America's financial markets, is getting monthly briefings from the Central Intelligence Agency on terrorist and criminal financial activities, according to a report in today's edition of Barron's.
"Each month, Chairman Christopher Cox and the four other commissioners are told about terrorists and other criminals increasingly active in the global capital markets," writes the paper's Steven M. Sears. "In an interview with Barron's last week, Cox said the intelligence reports offer the SEC a 'somewhat sharper focus' to an 'underworld of murky, illegal dealings that threaten the world capital markets.'"
Sears describes one scenario that concerns the SEC regulators.
"Criminals now purposefully disperse operations into different countries to avoid detection and prosecution," he writes. "For example, residents of Hong Kong, Malaysia, Estonia and Latvia have hacked into U.S. online brokerage accounts and used the money to bid up the price of their own stocks. In one 'account intrusion' case, criminals made more than $732,000 trading 15 Nasdaq-listed stocks."
Members of Congress are concerned with the SEC's expansion into regulating trades that are related to national security.
"A congressional delegation that includes the House Financial Services Committee, which oversees securities firms and SEC, visited key European regulators in early April to examine joint regulation issues amid concerns that regulators are ill-equipped to address coming challenges," the paper notes. "'The extension into national security is a huge issue for everyone. This will not be a secondary issue, but an extension of our ongoing talks,' says Steve Adamske, spokesman for Massachusetts Democrat Barney Frank, the committee's chairman."
The SEC is also seeking a higher level of briefing than it currently receives.
"The SEC recently asked the CIA for higher security clearances. The intelligence community is currently vetting Cox and the commissioners to see if they qualify for access to even more highly classified information than they are currently shown in their intelligence briefings," Barron's reports.
The article is only available to Barron's subscribers. An excerpt is provided below.
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A "James Bond scenario" in which terrorists buy millions of dollars of put options and blow up buildings or airplanes to increase the puts' value is deemed unlikely by intelligence authorities. Yet less developed securities markets have reported stock trading by terrorists to raise money. In February, India's national security adviser, M.K. Narayanan, said at a security-policy conference in Munich that India had evidence of "isolated incidents of terrorist outfits manipulating the stock markets to raise funds for their operations."
Cox would not say if terrorists were active, or present, in U.S. markets. But he was clear about the reason for this increased illegal activity in global markets.
"This phenomenon is born of the arrival on the scene of so many different, and substantial, liquidity pools," Cox said. "It used to be that significant capital had to be raised in the United States," but that is no longer true.
And therein lies SEC's great regulatory challenge. While insider trading in Dow Jones, TXU and Reebok securities linked to Hong Kong, Pakistani and Croatian residents may capture public attention, more significant market threats are harder to detect.
Original article posted here.
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