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During the past few months, a number of members have asked us about the SEC’s ability to rulemake during the White House’s ongoing moratorium on new rules by federal agencies. This moratorium was explained in our blog back in May. The extraordinary exception to the moratorium clearly isn’t responsible for all the SEC’s rulemaking during the past few months because some took place before the heightened crisis.

The issue of the applicability of an executive order to independent regulatory agencies has been a topic that recurs at the beginning – and the end – of every Presidential administration. The SEC has repeatedly tried to walk a fine line by taking the position that executive orders don’t apply, but that the Commission would adhere to the policy to the extent possible. For example, during early 2001, Laura Unger – when she was acting Chair at the start of the Bush Administration – announced that the SEC would abide by a rule moratorium imposed to freeze pending changes issued under the Clinton Administration. At the time, the SEC said that while the moratorium didn’t apply to independent regulatory agencies, the SEC would adhere to it to the extent possible (in fact, I thought that boilerplate for these types of executive orders typically requested that independent agencies follow it, but I don’t see that language in Bush’s May moratorium memo).

What About Rulemaking Before the New President Takes Office?

With the Presidential election upon us, the Congressional Review Act may now play a role (as this article notes, Bush is trying to cram down as many rules as possible now). It’s the law that created the Congressional rescission of an agency’s “major rule.” After rule adoption and publication, major rules must be submitted to Congress for a 60-day review period prior to becoming effective. The 60-day period is tolled
if Congress goes out of session for a 3-day or longer period. Since this is an election year, it’s possible that Congress will go “sine dei” until January, although Congress may well convene a lame duck session given the economic crisis. I think that for a rule to be effective, the SEC has to adopt it and the 60-day period has to run. This could cause a delay if there is no lame duck session.

Note there may be ways around the 60-day delay, such as an exigencies exception where the SEC can show a compelling reason to shorten the delay (there always seems to be this kind of exception). And bear in mind that this entire issue only arises if the rulemaking is “major” – there are alternate criteria, but “major” usually means a greater than $100 million annual economic effect in the aggregate. For example, to apply this litmus test to the SEC’s outstanding XBRL rulemaking, the efficiencies and benefits may be hard to quantify (and Chairman Cox likes to say that XBRL won’t cause much of an adverse impact to corporate bottom lines).

The art of rulemaking is not my area of expertise so some blanks may need to be filled in. If you scroll down on this “OMB Watch,” this legal quagmire may be better explained.

Regarding Bush’s push to adopt new rules before he leaves office, I couldn’t tell from the media reports whether the rules being pushed had been proposed back in June, in which case they would be consistent with his moratorium – or whether they were proposed by independent agencies that could make the same argument as the SEC. To me, aside from all of the technicalities, it’s just bad government to rush regulations just because the clock is ticking. Usually, that ends up with disastrous results…

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