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100 Days at the SEC

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The Securities and Exchange Commission's newest commissioners--Kara Stein and Michael Piwowar--gave speeches last Friday to mark their first three months in office. These speeches provide useful insight into the direction the new commissioners would like to take their agency.

As an economist, Mr. Piwowar worked in a plug for economic analysis as a useful tool that the SEC and quasi-governmental financial regulators should be using (regardless of whether the law requires it) out of a desire to do their jobs better. Most of his speech, however, was focused on enforcement. He spoke out against the SEC's retroactive use of its new Dodd-Frank authority and called for a reassessment of the commission's delegation of subpoena authority to its staff. The delegation was made in 2009 with great fanfare as a way to free the enforcement division of the cumbersome process of asking for permission from the commission before embarking upon a formal investigation. Because the commission routinely approved staff requests, it was easy to forget that the permission process itself served as an important restraint on the enforcement staff. In the absence of that filter, it is not surprising that--as Mr. Piwowar noted--the number of formal orders has risen markedly.

Ms. Stein emphasized the importance of completing the SEC's mandates under Dodd-Frank and the JOBS Act. She expressed less enthusiasm for the latter than the former and suggested that the JOBS Act's liberalizing changes to capital raising ought to be accompanied by some new restrictions. Ms. Stein also expressed investor protection concerns with respect to market microstructure--an area to which she promises to devote special attention. Implicit in her remarks is a discomfort with the "technological arms race" that allows some investors to invest in ways to obtain, and profit from, information or a technological edge that other investors do not have. Ms. Stein called for more even-handed treatment of all short-term funding sources, rather than placing restrictions only on money market funds. She signaled that her enforcement agenda will include efforts to expand accountability (i.e. penalties) for company's shareholders, managers, and gatekeepers.

Mr. Piwowar's speech drew heavily from the SEC's Canons of Ethics. One canon that he did not quote, but seems apt after reading the two speeches is that each commisioner's "conscience and those of other members are distinct entities and that differing shades of opinion should be anticipated. The free expression of opinion is a safeguard against the domination of this Commission by less than a majority, and is a keystone of the commission type of administration."

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