Milton Friedman – Regulation In A Free Society
The Securities and Exchange Commission (SEC) is poised to have the majority of its seats filled by Trump nominees. Earlier this week SEC chair Mary Jo White announced she would be stepping down at the end of President Obama’s term. This is not in itself surprising. The chair serves at the will of the president and it’s customary for the current chair to step aside and let an incoming president install a chair of his or her choosing. What is remarkable however is the number of vacancies that leaves president-elect Trump to fill.
The five member commission has had two empty seats for over a year and a half now, following Republican Dan Gallagher’s resignation in May 2015 and the expiration of Democrat Luis Aguilar’s term the same month. Although President Obama nominated two candidates to fill those seats, Republican Hester Peirce and Democrat Lisa Fairfax, their confirmations have been stalled in congress. (Like many similar commissions, the SEC must be politically balanced with no more than three seats filled by members of the same party.) White’s resignation will therefore leave only two commissioners in office, Republican Michael Piwowar and Democrat Kara Stein. Until a new chair can be confirmed, it is likely that president-elect Trump will name Piwowar acting chair. In the meantime, however, with only two commissioners, it is unlikely that the SEC will pursue any kind of ambitious agenda.
Looking forward to what the SEC might look like with its new members in place, it would be reasonable to hope for a less aggressive and more market-friendly agency than we have had under White’s direction. Trump has sounded a decidedly deregulatory tone both in the course of the campaign, vowing to dismantle Dodd-Frank, and in the days since the election. His pick of Paul Atkins, a former SEC commissioner known for his strong free-market bent, to head up part of his transition team also signals a commitment to paring back the voluminous regulations that have plagued the financial sector in recent years.
As far as concrete agenda items for a new chair, there are a number of regulations ripe for reform.
The U.S. capital markets have seen a marked decrease in the number of initial public offerings (IPOs) in recent years, which many have attributed to the Sarbanes-Oxley Act of 2002 and its onerous reporting and internal controls requirements for public companies. Under new direction, the SEC would be able to investigate what has been depressing interest in IPOs and to pursue strategies to reduce the regulatory burden as necessary.
Dodd-Frank imposed several disclosure requirements unrelated to companies’ profitability, a tactic former commissioner Gallagher has called “hijacking” the SEC’s disclosure regime. While many of these disclosure requirements cannot be repealed without an act of congress, the new SEC chair would have the authority to push back against any additional issue-of-the-day disclosures. Senator Warren and others on the left have agitated for a requirement that companies disclose information about political spending; it is unlikely that an SEC chair picked by Trump or his team would pursue such a rule.
Finally, a highly technical rule known as Regulation NMS has long plagued the securities exchanges, even some have argued spawning the trading strategy known as “high frequency trading.” A new chair would be well-positioned to reopen that regulation and to evaluate its potential unintended consequences.