Midday Market Update: Financials Go Under the Microscope

September 18th at 10:00am by Tom Lydon

Stocks and exchange traded funds (ETFs) advanced in morning trading as investors sought to resume the two-week rally, which has witnessed stocks rising eight out of the past 10 days.

The financial sector seems to be coming under more scrutiny as pay policies for bank employees across the United States would require approval from the U.S. Federal Reserve as part of a proposal to further curb risk-taking at financial institutions.  Under the proposal, the Fed could reject compensation policies that it feels could encourage employees to take excessive risks, reports Edmund L. Andrews for The New York Times.

In an attempt to provide more transparency for credit rating companies and stem conflict of interests, the Securities and Exchange Commission (SEC) is looking at credit rating agencies, Karey Wutowski for Reuters reports.  The credit rating industry was widely faulted for its role in the subprime mortgage debacle and the financial crisis.  One of the many SEC’s proposals includes intending to bar companies from “shopping” for favorable ratings of their securities by requiring companies to disclose whether they had received preliminary ratings from other agencies.

The Financial Select Sector SPDR (NYSEArca: XLF) wasn’t too moved by the scrutiny, and is trading down just 0.5% this morning.

Additionally, the SEC is considering banning flash orders.  A flash order refers to certain members of exchanges, often large institutions, buying and selling information about ongoing stock trades milliseconds before that information is made public.

In the commodities world, crude oil fell for the second straight day as the dollar strengthened against the euro and stockpiles dropped 4.73 million barrels to 332.8 million last week.  The decline left inventories 7.9% above the five-year average for the week.  The United States Oil Fund (NYSEArca: USO) was down 1.1% in morning trading.

As for the overall markets, it appears to be a slow trading day. The Dow Jones Industrial Average is up 0.2%, the S&P 500 dropped 0.1% and the Nasdaq gave up 0.1%.

For more stories on financials, visit our financial category.

Kevin Grewal contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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