From “Plexus Nexus”, by Peter Chepucavage
(Co-authored by Tony Broy) — Senator Jack Reed, a Democrat and Chairman of the Senate Subcommittee on securities said last Thursday he will hold a hearing to review the Securities and Exchange Commission from top to bottom and see where improvements can be made and would call in experts to offer recommendations. While there may well be benefits to this effort, it will also slow down any internal efforts by the commission to restructure. We offer the following as a temporary solution that can be implemented without legislation.
REGULATION BY ENFORCEMENT IS NOT WISE
Expectations are high for serious reform and much of that expectation suggests more SEC enforcement staff. But as explained in the Center for Capital Markets Competitiveness Report on the Efficiency and Effectiveness of the SEC, http://www.uschamber.com/assets/ccmc/090211ccmc_sec_speed.pdf (CCM REPORT) enforcement should not be the primary venue for implementing policy. The SEC must not always be reactive. We believe there is much confusion about the role of such staff. By its very nature enforcement staff pursue sanctions after the fact. The former Enforcement Director admitted as much at the congressional hearing. They do not perform surveillance or examine. A wiser approach or strategy might be how to prevent problems through an increase in preventative staff or better use of current resources. Harry Markopolis-HM- made the same point in his testimony at the Congressional hearing.
ALLOCATION OF RESOURCES IS VITAL
There are currently at least 6 entities regulating the securities side of financial services. The SEC has 3500 employees. FINRA has 3000 employees. The NYSE regulatory staff has approximately 300-500 employees and the NASDAQ regulatory staff has additional personnel. The 50 states have approximately 500-700 employees in their securities administrator’s offices and attorney general’s offices. [entire post]