Opinion: The frantic pace of SEC regulation is in danger of breaking


Recent history has shown how resilient our financial markets can be in the face of volatility and chaos. But they are not immune to the consequences of overzealous regulation.

The pace and scope of the SEC’s financial regulatory proposals under Chairman Gary Gensler are reminiscent of what happened after the 2008-09 financial crisis. Last fall, the SEC announced its intention to promulgate 54 separate rules. To date, the commission has released 24 of these rules for public comment, including 16 in the first quarter of 2022 alone. These rules add to several major initiatives that were already underway, including “expedited settlement“, which would move the time to settle securities transactions to a single day, and the construction of industry-wide big data”consolidated audit trail” to track virtually all securities transactions.

And just last week, Gensler discussed a potential SEC proposal that could require brokerages to route orders from individual investors to buy or sell stocks through auctions — a major change. in how trades are currently executed on US stock markets.

Some of the regulatory proposals represent positive steps for the safety, soundness and efficient functioning of financial markets. But many industry players worry that the speed and volume of SEC regulation increases the chances that something could go wrong. I sit on the board of the Securities Industry and Financial Markets Association along with a group of my industry peers and I share that concern.

It’s not just inside baseball. While many people never give it a second thought, our global financial system is one of the wonders of the modern world and the rules that govern it impact our daily lives. Without clear and strong investor protections, we would have no confidence in the security of our savings for college, buying a home or retirement. Without well-functioning financial markets, businesses could not access the capital they need to develop new product lines, build factories and grow their workforces, and governments could not expand or repair infrastructure. or fund essential services.

Regulations, which aim to both protect investors and preserve the strength of our markets, are essential.

At the same time, the global financial system is extraordinarily complex and interconnected, so much so that overlapping and poorly designed rules can have serious unintended effects. “Handle with extreme care” should be the watchword of any agent of change. The problem with many of the latest regulatory initiatives is that they are being rolled out with shortened public comment periods, leaving far from enough time to sift through the proposals – thousands of pages in total – to assess their potential impact. or to identify interdependencies, connection points and relationships with other regulations in other countries.

A wave of new rules and regulations of such magnitude increases the level of uncertainty as to what the rules of the road will look like in the future and, if passed, would also require significant new investments of financial resources, technological and human resources for financial services companies. Uncertainty and rising compliance costs limit the ability of financial markets to do what society wants and expects of them, which is to facilitate economic growth.

You could say that the financial crisis of 2008-09 warranted a massive rewrite of the rules of the road, but there is no crisis now. In fact, the financial system has held up remarkably well and proven its resilience during several recent periods of stress, including Covid-19 and Russia’s invasion of Ukraine.

Regulatory rules are essential, but the process of establishing them is important. Is there any harm in slowing down SEC rulemaking to a more deliberate pace to allow time for those best placed to assess the impact of new regulations and avoid the negative consequences of having input significant?

John Taft

Photo Illustration by Staff; Courtesy of Baird Photography

John Taft Is vice-president of Baird. He is a member of the board of directors and former president of the Securities Industry and Financial Markets Association (Sifma). He is the author of two books, Stewardship: Lessons from the Lost Culture of Wall Street and A Force for Good: How Enlightened Finance Can Restore Faith in Capitalism. He shares his views on the industry on his blog, Finance for the common good.


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