Harvey L. Pitt has come under fire for some activities as chairman of the Securities and Exchange Commission, but there should be no discontent over his hiring of Lawrence E. Harris as the SEC's chief economist and director of its office of economic analysis.
Mr. Harris is a scholar who has produced valuable microeconomic research on critical investment issues in the markets and knows well many of the concerns of the investment community. It is an excellent appointment.
Among his activities, when decimalization was about to be initiated, Mr. Harris produced a study about the potential of "legal front-running" that could occur because of very narrow pricing margins, a problem evident today and called "being pennied." As he described it, when someone puts out an order at, say, $20, someone else may step in at $20.01. "That happens a lot and is of concern to buyside traders," he said in an interview.
In the early 1980s, when indexing was still in its infancy at pension funds, he produced a study on the S&P 500 effect, the unusual rise in the price of a stock when it is added to the index because index fund investors quickly buy the stock to track the benchmark. He has advised Standard & Poor's on index addition procedures.
In October, Oxford University Press Inc. will publish Mr. Harris' book, "Trading and Exchanges: Market Microstructure for Practitioners."
He is the current academic research coordinator for the Q Group, the Institute for Quantitative Research. The SEC ethics panel will allow him to continue in that capacity so long as he does it on his own time and because, in part, the SEC doesn't regulate the Q Group, nor does the Q Group lobby the SEC, he said.
Until recently he served on the academic advisory panels of the Association for Investment Management and Research and the National Association of Security Dealers Inc.
He has done little consulting, although he did some consulting for Plexus Group, a trading analysis firm based in Los Angeles, about five years ago.
"I basically have done hardly any consulting," he said. "You can hardly get your work done if you do."
Among other activities, he has testified before a House subcommittee on decimalization; studied the October 1987 stock market crash, examining both lingering vulnerabilities and dangers of regulatory overreaction; and analyzed program trading and market volatility.
Mr. Harris will retain his academic position, taking a two-year leave of absence as Fred V. Keenan Chair in Finance and as professor of finance and business economics at Marshall School of Business, University of Southern California, Los Angeles, where he has taught for 20 years. In that time, he's taken one-year leaves to work at the SEC and New York Stock Exchange. He earned his Ph.D. and M.A., both in economics, at the University of Chicago.
Starting July 1, he will head the SEC's economics staff of 25 in Washington, leading development of major policy projects designed to make SEC disclosure and other regulations more efficient and effective and enhance understanding of their economic costs and benefits. His move to Washington is good news for the markets.