By Geoff Elliott
NEW regulations in the US - the so-called Dodd-Frank bill - will do nothing to prevent the next financial crisis, according to Harvey Pitt, the former chairman of the US Securities and Exchange Commission.
From the $US600 trillion derivatives market that sprang up last decade without SEC oversight, to the latest fears of "dark pool" trading between hedge funds outside traditional exchanges, Mr Pitt said regulators faced the eternal problem of markets and investors evolving faster than they could.
The Obama administration signed off on the Dodd-Frank legislation last year and it has attracted a welter of criticism for being too unwieldy and placing too great a burden on US business at the wrong time and without achieving the kind of reform some had hoped for.
"It is a 2013-page behemoth," Mr Pitt told The Australian. "I mean God was able to give the human race 10 commandments to follow and Congress has given the financial services industry in the US 2013 pages to follow.
"Congress laboured mightily and delivered a mouse -- a very large mouse, but a mouse. This was a lost opportunity."
Mr Pitt was SEC chairman from 2001 to 2003, a George W. Bush appointee whose tenure included the period when energy trading company Enron collapsed, one of the most infamous corporate failures in US history.
"We were pretty active," Mr Pitt said of the oversight of Enron. "We insisted that Enron put out affirmative statements and we changed a lot of accounting rules but there were a lot of things wrong with disclosure policies.
"One of things I would have liked to have done is oversee a complete overhaul (of the disclosure regime) so people get critical information when they need it."
Some of this reform had been picked up by his successors, he said. "I think there is always more any regulator can do."
However, Mr Pitt said the present regulation would do little to prevent another crisis.
"What was needed was more efficient, effective and nimble government oversight; what we got was more and more layers of bureaucracy, which is great for lawyers but not terribly good for the average person who depends on government to understand all the markets they regulate."
He said the Dodd-Frank bill was "unlikely to prevent the next crisis, which won't look anything like the last crisis".
Mr Pitt said the new regulatory rules were driven by a political backlash and "what they always do is catch up with makeshift and bandaid solutions".
The latest concern in markets had been the use of "dark pools" trading in which the hedge funds looked to avoid regulated market exchanges to escape scrutiny.
These were "computerised trading venues and the real problem (wasn't) so much the dark pools themselves," Mr Pitt said. "But the question is why did they arise? Why did people feel it necessary to go to dark pools? The reason people do it is they want more anonymity for their trades."
Last week, the SEC dragged a dark pool trading platform into the light, settling charges the firm was running a secret affiliate that sought to trade ahead of customers' orders. Pipeline Trading Systems and two executives agreed to pay $US1.2m ($1.13m) in fines to settle the charges.
Harvey Pitt is in Australia as a guest of the US Studies Centre and the Sydney Business School at the University of Sydney.