SEC staffers have a tough enough job - working under the critical eye of Congress, pushed by Dodd-Frank deadlines, and suffering one embarrassment after another.  Now, they say that concerns with discount brokers has led the Agency to take a closer look at some of these firms and the role they play in increased volatility and potential "systemic risk" to stock markets. The agency  is now stepping up its scrutiny on discount brokers that could pose "systemic risk" to the markets, according to Julius Leiman-Carbia, SEC associate director for OCIE.

• A systems glitch at a national discount broker that serves thousands of investors could have the same kind of impact as a major broker dealer going under - e.g., if trades suddenly could not be processed at a firm like Fidelity Investments, it would not just impact retail clients. Business client trades also wouldn't be cleared and that could create a liquidity crunch and potentially lead to a repeat of the 2010 flash crash.

• "Fat finger" trades at discount brokers that are reliant on big trade volume pose greater risks at these firms.

The SEC's sharper focus on some discount brokers comes at a time when the agency is trying to pinpoint the factors that have contributed to the volatility in equity markets. Market observers have blamed the huge daily swings in major stock indices on everything from leveraged ETFs to high frequency trading. Creating Examination Team. Leiman-Carbia said he will create a group made up of 5-10 examiners who will focus on these firms. But he said the division's 300 other examiners will also be responsible for keeping an eye on the potential problems. Separately, the SEC said it also is focusing more attention on ETFs. The agency will look at whether ETF providers are keeping the net asset value of their portfolios in line with the value of its underlying securities. Leiman-Carbia said that no specific incident prompted the agency's increased focus on ETFs, but that the move is part of its larger effort to understand whether ETFs are contributing to market volatility.   [Reuters, 9/29/11]