NYSE's Carter: Ethics Matter as Much as Regulation
March 22, 2010
NYSE Group chairman Marshall N. Carter said Monday, a stable trading environment depends as much on ethical behavior as regulation, in the wake of the 2008 financial meltdown.
On ethics, Carter, who is also deputy chairman of NYSE Euronext, seemed a bit stumped about how to improve them industrywide, as the keynote speaker this morning in Boston at the 16th annual Industry Forum and Vendor Show of the International Securities Association for Institutional Trade Communication. But he clearly believes it starts with role models in high school and the individual.
How do you repair "the corrosion of ethics" in the financial industry? he was asked.
"There's not a lot of national role models," Carter said, adding that recent U.S. presidents have not not served in that capacity nor has former Federal Reserve Board chairman Alan Greenspan, who ignored his critics predicting the real estate collapse.
"You have to start in high school. Boards of directors have to do the right thing," he said.
When he was CEO and chairman at State Street Bank and Trust Co., he said the company decided not to buy Boston Safe Deposit and Trust Co. because it could do 80 per cent of what the former did with 15 per cent of its people. "It did not seem ethically right to us."
Along with more ethical behavior, regulation that is not "punitive" is needed, according to Carter.
He sees regulation coming soon now that Congress is winding down the healthcare reform debate. He sees companies getting regulated by function instead of charter (AIG was regulated as insurance company, but functioned as a financial company), hedge fund registration, more ratings agency oversight and new clearing house regulations.
"You can write all the rules you want, but you need ethical behavior...and integrity. We need [them] in such a way where we do lose entrepreneurship,’’ he said.
“Lack of regulation means lack of transparency...[about] the dark segments of the markets," he said, adding that continued payment of huge bonuses "indicates the balance is not there."
More specifically, trading transparency rather than "anonymity and [trading] speed" should drive the markets. "You could ask if markets are true allocations of capital or are they just big trading operations."
Carter, who came out of retirement in 2003 after then-NYSE chairman and CEO Dick Grasso was fired, was not without humor.
"When was the last time Congress did something good for country?" he asked on the day after the historic healthcare reform House vote.
His answer was in 1961 when it reversed a National Football League policy of not broadcasting games within 100 miles of a stadium if a team did not fill every seat.
He referred to the most recent financial debacle as when our "401ks were turned into 201ks."
Carter said a perfect storm caused the 2008 financial meltdown. He said conditions that conspired to bring downt he markets included lax lending rules, unreliable ratings services, highly-leveraged banks, CEOs pumping up share prices with overly risky behavior and the failure of regulators to actively regulate.
"None of us could have imagined the events that unfolded. They put us where we are today - struggling to escape from a deep recession," he said.
