Candor is key, NYSE reg chief says

To avoid a credit meltdown like the one we are currently experiencing, America’s top financial watchdogs will need to make haste in addressing transparency challenges posed by complex securities products, New York Stock Exchange Regulation Inc. chief executive Richard Ketchum emphasized Tuesday in a speech at Hofstra University in Hempstead, N.Y.

“There has to be an immediate effort [by regulators] to address transparency problems,” he said at a Hofstra conference, “Causes of the Recent Financial Crisis and Effects of the Bailout.”

In addition to enhancing oversight of hedge funds, regulators also need to improve monitoring of over-the-counter derivatives, which Mr. Ketchum said creates “non-transparent trading environments” since these trades are made through private agreements and are not done through an exchange.

“Regulators need to have oversight over all major participants in the market,” said Mr. Ketchum, who is a non-executive chairman of the board of governors at the New York- and Washington-based Financial Industry Regulatory Authority Inc.

“The regulatory interaction has to be at a level of candor.”

Mr. Ketchum also criticized the ratings agencies, describing them as having “stunning lack of intellectual curiosity” and conflicts of interest that led to lax oversight, causing the credit crunch.

In an interview following his speech, he said that he is hopeful that increased regulations to address transparency concerns can be put in place next year, perhaps through congressional legislation.

“I think it’s going to be dramatically different in 2009,” Mr. Ketchum said.

Hofstra’s half-day conference on the state of the financial markets was sponsored by its Frank G. Zarb School of Business through its Merrill Lynch Center for the Study of International Financial Services and Markets.