SEC Rulemaking Agenda

The Securities and Exchange Commission proposed 32 major new rules in just 11 months ending August 2022 and is preparing at least another 19 for release in the next year.

Rushing to implement dozens of complex and far-reaching new regulations simultaneously absent prioritization, coordination, and robust cost-benefit analysis is not conducive to effective, enduring policymaking. And amid inflation, rising interest rates, and geopolitical uncertainty, it risks harming those whose financial security relies on strong capital markets – from workers to retirees, homeowners to business owners, and young families saving for the future to seniors living on a fixed income.

Our economy and society depend on the U.S. capital markets

Our capital markets affect nearly every aspect of our lives. The financing and investment opportunities available through capital markets:

  • Allow companies to invest in new plant and equipment that creates new jobs,
  • Manage risk to maintain jobs,
  • Support the beneficiaries of pension funds,
  • Enable municipalities to build new infrastructure and provide essential services,
  • Empower working families to build wealth through savings and investment,
  • Provide a stable source of credit for homeownership,
  • Act as a shock absorber during periods of economic stress, and

The U.S. securities markets are the deepest and most liquid in the world. They are also among the most regulated sectors of the U.S. economy. Therefore, it is critical that regulators tailor their interventions to address a market failure without unnecessarily harming or disrupting markets, especially when our economy faces serious headwinds. However, the high volume and speed of regulatory change at the SEC could result in negative consequences for the real economy in terms of output, employment, investment, and prices.

Learn more about the historic scale and scope of the SEC’s regulatory agenda.

The speed, breadth, and volume of regulatory change at the SEC will have sweeping and unknown implications that could compound our current economic challenges

Regulators should ensure their rules keep pace with markets, but transformative changes must be thoughtfully crafted and fully vetted for indirect costs and cumulative effects, particularly at a time of economic stress and uncertainty.

Unfortunately, the SEC is taking a very different approach with its flood of new regulatory actions that would make far-reaching changes to trading practices in every asset class under its jurisdiction.

  • Rushing to propose and finalize dozens of new rules simultaneously undermines the ability of SEC staff to consider the cumulative effects, indirect costs, and cross-market implications, which greatly increases the risk of serious unintended consequences.
  • Short and overlapping comment periods limit the public’s ability to analyze and provide feedback on the proposals. Learn more about the SEC’s short and overlapping comment periods here.
  • Many significant policy changes are being made outside the public notice and comment process.

A robust economic impact analysis is the foundation of effective regulation

Congress requires the SEC to conduct an economic impact analysis while developing each new rule to identify and assess its likely costs and benefits. However, the accelerated tempo of rulemaking runs the risk of undercutting the ability of SEC staff to carry out this responsibility in a thorough and balanced manner, leading to two common flaws in the economic analysis of new rules.

First, the SEC fails to consider the cumulative effects or cross-market implications between related proposals.

  • During a period of significant regulatory activity, the burdens created by a new rule cannot be evaluated in isolation from those created by other related rules. The total costs – direct and indirect – of a set of complementary regulatory actions is often greater than the sum of its parts.

Second, the SEC focuses predominantly on the direct implementation costs while omitting or significantly underestimating the indirect costs.

  • Often the direct costs of a regulation, primarily firms’ compliance-related expenses, are significantly smaller than its indirect costs that arise from changes to market participation and firm behavior and incentives. To learn more about the potentially significant indirect costs of recent SEC regulatory actions – such as reduced market liquidity and increased risk, investing costs, and borrowing costs – explore this interactive market impact diagram and presentation from NERA Economic Consulting.

A better way to regulate our capital markets

Continuing on the SEC’s current trajectory could lead to ineffective and harmful regulations that do not advance its mission. Rushing to finalize its rule proposals as hastily as they were proposed could cause significant disruption to the capital markets and the broader economy that could negatively impact Main Street investors, retirees, and the employees and customers of American businesses.

There’s a better way to regulate our capital markets that focuses resources on the most time-sensitive priorities, conducts more robust economic analysis that accounts for cumulative and overlapping effects before moving forward with the most problematic proposals, and prioritizes transparency and public engagement.

Our capital markets are too important, and our economy is facing too many challenges, for the SEC not to get this right.

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