Thursday, January 29, 2009

Commissioner Aguilar Calls for Change at the SEC

On January 26, SEC Commissioner Luis A. Aguilar addressed the ICI's Board of Governors Winter Meeting, and called for some changes in the jurisdiction and funding of the Commission.  He first called upon Congress to strengthen the structure of the SEC by allowing it to exert jurisdiction over financial instruments and products that fall squarely within the Commission's mission.

As I have said before, I support the SEC’s model, which focuses on investors and markets, and provides for strong and broad regulatory authority and vigorous enforcement, coupled with flexible exemptive power to permit dynamic regulation where needed. Our securities markets have been the world’s best in large part because of SEC regulation, which provides for fairness, efficiency and transparency, and robust enforcement of that regulation which, in turn, supports investor confidence, low market transaction costs, and efficient public capital raising.

Aguilar said this can be achieved by amending the securities laws to allow the Commission to regulate "all products that can function as securities, or economically substitute for securities." 

Aguilar also said he supports a merger of the SEC and CFTC only if it is "done in the right way." 

An SEC-CFTC merger would answer the question of “who” regulates certain financial services, market participants, and products. However, it would not address “how” they are regulated, and this is the key question. The SEC and CFTC have different objectives and have not pursued the same models of oversight.

Commissioner Aguilar also proposed that the SEC's source of funding should be a dedicated and independent source, self-funded, like that of the Federal Reserve.  He identified the SEC's funding source as a hindrance to achieving its mission. 

I also believe that dedicated, independent financing, such as that enjoyed by the Federal Reserve, is important to enabling the SEC to do its job. Although the SEC is an independent federal agency, the agency is not self-funded. Instead, the SEC’s budget is recommended by the President and annually appropriated and apportioned. This has led to weaknesses in the agency’s ability to perform its mission. By having independent budget authority like the banking regulators, the SEC would have greater control over its own budget and funding levels, allowing the agency to take steps to address its growing workload in an increasingly complicated marketplace, while also recruiting and maintaining quality staff.

Like SEC Chair, Mary Schapiro, Aguilar stated that he supports amending the securities laws to regulate hedge fund advisers and derivatives, as well as municipal securities disclosure. 

As for his priorities for the Commission, Aguilar further stated that he would like to have the SEC staff undertake a study of the growth of institutional ownership and the consequences for regulation and the capital markets. He also would like to see the formation of a federal advisory committee to make recommendations for improving retail investor participation in Commission business and for improving the usefulness to retail investors of Commission rules.

The full text of Commissioner Aguilar's January 26, 2009 speech is available at: