February 26, 2015

Should the SEC Shorten Its Adopting Releases By Providing Less Guidance, Etc.?

Recently, SEC Commissioner Piwowar delivered this speech entitled “A Fair, Orderly, and Efficient SEC.” The piece of the speech that interested me was the one below calling for shorter adopting releases – and perhaps even breaking rulemakings into smaller parts. Before I give my ten cents, I am interested to hear your feedback on the Commissioner’s remarks – email those to me and also provide your anonymous responses to the two surveys just below this excerpt from the speech:

Fairness demands that the Commission not act arbitrarily or capriciously. Those we regulate therefore should know the rules and standards to which they will be held. While we cannot guarantee that everyone has actual knowledge and understanding of our entire rule set, it is incumbent upon us to make sure that those we regulate are on notice as to the rules and standards by which they must operate. In particular, we must ensure that the rules do not change day-to-day on the whims of the Commission and/or its staff. This means that, as required by the Administrative Procedure Act, the Commission must not adopt any new rule or rule amendments without proper notice and an opportunity for comment by the public. The corollary of this principle is that the Commission and staff must not engage in rulemaking by enforcement or through examinations of regulated entities. For example, we must resist the temptation to include undertakings in enforcement settlements or principles in examination reports that serve as de facto rule requirements.

Another issue with our rulemaking process that raises fairness concerns is the increasing length of the releases that accompany and explain our rules. As many in this room can attest, it is becoming the norm that our adopting rule releases number well over 500 pages. While some of this length can be attributed to a more robust economic analysis, a significant portion is simply an attempt to explain the new rule(s) or amendments. Where 500 or 1,000 pages are required to explain the rules we have adopted, the Commission must ask itself whether our rule text is too complex for market participants to reasonably understand and apply. Moreover, the sheer length may discourage many from even attempting to read the rules, which is a significant problem for an agency seeking to promote compliance with its own rules.

The voluminous nature of many recent releases also suggests that rather than merely explaining our rules, these documents now include extensive guidance akin to rulemaking, which can create entirely separate fairness concerns. For example, the most recent amendments to our money market fund rule included key guidance akin to rulemaking for all mutual funds, not just money market funds, which was buried in a footnote within an almost 900-page release. We must reduce the size of our releases. I know that our rules can be quite complex, but perhaps we can start by breaking rulemakings into smaller pieces contained in multiple releases rather than in one omnibus rulemaking.

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Recap: The SEC’s Latest Investor Advisory Committee Meeting

The SEC’s Investor Advisory Committee is ramping up its activity lately. From SIFMA, here’s a summary of the committee’s latest meeting. Meanwhile, the SEC’s Advisory Committee on Small and Emerging Companies – which is a different committee – meets next Wednesday…

A SEC Commissioner Dissents Over Listing of ETFs

As noted in this Reuters article, SEC Commissioner Stein issued this dissent from the SEC’s order that approved the Nasdaq listing of a group of new exchange-traded funds. I’ve blogged before about concerns over ETFs – and whether they are turning the stock markets into more of a casino…

– Broc Romanek