Broken Windows: SEC Commissioner Hester M. Peirce’s Remarks before the 51st Annual Institute on Securities Regulation

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Last week, U.S. Securities and Exchange Commission (SEC) Commissioner Hester M. Peirce, delivered a speech providing recommendations on how to make the SEC’s enforcement program even better than it is.

First, the SEC should be on the lookout for rules that need to be written, eliminated or rewritten.

By modernizing its rules, the SEC can focus enforcement resources on violations that it believes to be harmful to investors and markets. An example of a rule in need of modernization soon is the advertising rule, which was promulgated in 1961.

SEC Commissioner Peirce supports the creation of a non-exclusive safe harbor period within which a token network could blossom without the full weight of the securities laws crushing it before it becomes functional.

SEC Commissioner Peirce also expressed concern about how the SEC has regulated the crypto space and believes the lack of a workable regulatory framework has hindered innovation and growth. By allowing legitimate projects to get their tokens into the hands of a broad set of developers and network users without fear of enforcement, the SEC’s Enforcement Division would be enabled to focus its resources on the fraudulent actors in the realm of crypto offerings.

Second, the SEC should focus more on compliance and less on enforcement as a way to solve problems.

Through the great work of the SEC’s Office of Compliance, Inspections, and Examinations, the SEC can assist registrants who are working hard to comply with a complex, ever-growing set of rules.

Third, the SEC should be sensitive to the far-reaching implications of the actions it takes.

The Consolidated Audit Trail (CAT), once it is fully operational, will track all trading activity in the equity and options markets. Originally conceived as a tool to unravel the mysterious causes of market events like the Flash Crash, the CAT is now just as often cited for its potential use as an enforcement tool. This massive surveillance program provides too much information and power to government regulators, and by compiling all this data in one place, sets the stage for potential abuse either by regulators or cybercriminals.

Fourth, self-regulation can play a valuable role in preventing and detecting problems.

SEC Commissioner Peirce is not referring to self-regulatory organizations. Rather, she believes people in the industry who take their duties to their customers and their commitment to the integrity of the markets seriously should call out colleagues and competitors who fail do so.

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1 Comment

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    Highly descriptive post, I enjoyed that a lot. Will there
    be a part 2?