September 17, 2009

SEC Creates New Division of Risk, Strategy and Financial Innovation

Yesterday, the SEC announced the creation of a new Division – the Division of Risk, Strategy and Financial Innovation. The new division combines the Office of Economic Analysis, Office of Risk Assessment and “other functions to provide the Commission with sophisticated analysis that integrates economic, financial, and legal disciplines.” At least for starters, this Division will have quite a small staff.

As rumored, the SEC lured Professor Henry Hu from Texas to head the new Division. Henry has become famous for his writings on derivatives, including problems with proxy voting. The addition of his expertise comes at a critical time given that broker nonvotes are eliminated next year for director elections. I continue to expect numerous problems as votes become more hotly contested and wind up in court.

I wonder what catchy nickname this new Division will earn – nothing comes to mind like Corp Fin and Market Reg. Maybe just initials like IM?

When Was the Last Time the SEC Created a Division? 1972

Surprisingly, this question stumped me when I pondered this one. So I went to the first logical source I could think of – the SEC Historical Society’s site – and I got zip. Then I turned to a place that has been gathering dust on my bookshelf – the Louis Loss Treatise – and found these nuggets buried in a footnote:

– Current Divisional organization dates back to August 1972.
– Before then the SEC had three divisions: (i) Trading and Markets, (ii) Corporate Regulation (which administered PUHCA and John Huber informs me was the biggest and most important division during the Depression) and (iii) Corporation Finance (actually, Loss uses the term “Corporate Finance,” a common misspelling!).
– ’72 reorg divided Trading and Markets into a Division of Enforcement and a Division of Market Regulation.
– The ’72 reorg also created a new Division of Investment Company Regulation, spun off from the Division of Corporate Regulation.
– In January 1973, the Division of Investment Company Regulation was renamed the Division of Investment Management
– In December 1983, the SEC delegated authority to its General Counsel that ended the Division of Corporate Regulation (and became an Office within the Division of Investment Management).
– In November 2007, the SEC renamed the Division of Market Regulation back to its ’72 name: Division of Trading and Markets.

Note that the sizable Office of General Counsel has never been a Division.

Bonus Question: When was Corp Fin created? The SEC’s 1943 annual report says the agency was reorganized in 1942, creating the Corporation Finance Division. This new Corporation Finance Division was referred to that way in subsequent annual reports until the ’48 annual report, when the SEC (without explanation) referred to the division as the Division of Corporation Finance. Thanks to Alan Dye for digging this nugget out! It should be required learning as part of a new Staffer’s initiation…

More on “The Mentor Blog”

We continue to post new items daily on our new blog – “The Mentor Blog” – for members. This blog might be misnamed – it’s not just about mentoring – it covers all types of developments and practice pointers that can prove useful in your daily practice.

Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– Delaware Chancery Court Mulls Lawsuit Over Director Resignations
– Tweaking Stock Ownership Guidelines
– Pricing Committees: Pros and Cons
– Law Firms Going Public: Crazy Talk?
– Rule 10b5-1 Plans: Still a Good Idea
– Nearly Complete: The Transition to a Paperless Stock Certificate World

– Broc Romanek