By Elana Schor - 10/20/05 12:00 AM EDT
The Financial Services Roundtable, which represents nearly 100 top U.S. banks and securities traders, will release a study tomorrow calling for major reforms at the Securities and Exchange Commission (SEC) and charging the agency with neglecting efficiency in an effort to protect investors.
Peter Wallison, a White House counsel during the Reagan administration, and Cameron Smith, a former SEC counsel now working for Inet ATS, an electronic stock trader, wrote the report. Seizing on the ascension of former Rep. Christopher Cox (R-Calif.) to the commission’s chairmanship this summer, the study calls for the SEC to revisit several controversial regulations past commissions have enacted.
“The commission has failed ... to understand that Congress was seeking a balance in the SEC’s rulemaking activities,” Wallison and Smith wrote. While a 1996 law required the SEC to consider “whether its action will promote efficiency, competition and capital formation,” the study adds, “the commission has largely ignored this statutory obligation.”
The so-called independent-chairman rule receives particular scrutiny in the study, which contends that the SEC “revealed the narrowness of its vision” with its bid to make mutual funds retain independent chairmen and largely independent boards. The U.S. Chamber of Commerce has vigorously challenged the rule, and its ongoing court battle with the SEC will culminate in a federal appeals hearing in January.
The study’s recommendations could have a galvanizing impact on the SEC’s decisionmaking under Cox, who was targeted before his confirmation by consumer watchdogs concerned with what they described as his anti-investor voting record. The SEC already has touched on one of the study’s ideas, to end the self-regulation of stock markets and create outside competition for regulatory contracts.
Lisa McGreevy, president of the Roundtable’s government-affairs council, said that the study was commissioned by the Roundtable’s research arm and that its conclusions do not necessarily reflect the trade group’s legislative agenda.
Wallison said the difficulty of achieving consensus among the securities-market giants that belong to the Roundtable — many of whom are competitors — was a key reason for the study.
“Many of the members don’t want to say the things we said. Many of the members do want to say the things we said,” Wallison said.
The study also calls for restructuring said in the SEC’s enforcement division, including the creation of a commission ombudsman to field complaints about investigations. Wallison and Smith urge the SEC to give more credence to the comments it is legally required to solicit from affected businesses before moving forward with new regulations.
Inet ATS, Smith’s employer, had firsthand experience with SEC enforcement officials earlier this week. The company settled with the SEC and NASD, the markets’ private self-regulator, to avoid an investigation of alleged widespread inaccuracies in its trading reports. The SEC had charged that Inet’s mistakes affected up to 30 percent of all trades on the Nasdaq stock exchange.
Nasdaq, meanwhile, is close to completing a $934.5 million purchase of Inet’s parent company. A spokesman for the SEC said the commission would be unable to comment on the study before its public release.