The inspector general of the Securities and Exchange Commission, David Kotz, is leaving. As he departs, he has prepared a report critical of the3 SECs approach to internal procedures he views are not minimizing the ramifications of recent court decisions about the SEC and hamstringing the agency’s statutory duties with respect to implementing the Dodd-Frank mandated procedures.
Reuters has issued a suffocatingly boring news story about this situation, an article written by Sarah Lynch with editing by Steve Orlofsky and Gary Hill. A link is below to the actual text.
Kotz wrote that the cost-benefit analyses used in making various rules varied and thus lacked consistency. This is an important finding because various business groups have taken action against the agency. One successful appeal rejected an SEC Dodd-Frank rule that sought to empower shareholders in more easily nominating directors to the boards of corporations. The court rejected this approach since the SEC had not weighed the economic consequences.
Some business groups, including the U.S. Chamber of Commerce, question other new rules pending at the SEC. The SEC is responsible, through the Dodd-Frank Act, for writing about 100 new rules to police financial markets and organizations which malfunctioned during the financial crisis of 2007-9. To make these rules, an avenue is required for allowing public comments on the proposals.
Kotz has issued two reports examining whether the economic analysis was consistent, in response to concerns brought up by the Senate Banking Committee, particularly ranking Republican member Richard Shelby (R-AL). SEC’s inspector general’s office retained Robert H,. Smith, a finance professor at the University of Maryland’s Robert H. Smith School of Business, to assist in the review.
Some of the activities examined included a rule permitting shareholders to hold non-binding votes on compensation, review of asset-backed securities rules, and proposals involving the reporting of "security-based swap data," or, in plain English, financial derivatives reporting.
Kotz’s report was critical of the SEC, noting that the agency’s former head lawyer had the opinion that the agency should perform thorough cost-benefit analyses on rules that are not explicitly required by Congress.
Friday's report covered a sample of Dodd-Frank rulemakings, including a rule allowing shareholders a non-binding vote on compensation, several asset-backed securities rules and two proposals pertaining to the reporting of security-based swap data.
Kotz's report was critical of the agency in a number of areas.
Rules mandated by Congress, however, generally would not need the same level of cost-benefit research, the memo said.
The attorney’s memo noted that rules mandated by Congress would not generally need the same level of cost-benefit analysis. SEC management disagreed because of "practical limitations" and "the distinct roles of Congress and administrative agencies."
SEC management noted:
"We think it is entirely sensible ... for the staff to focus its attention and the commission's limited resources on matters that the commission has the authority to decide."
http://news.yahoo.com/exiting-watchdog-sees-flaws-secs-rulewriting-012447581.html
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Comments by the Blog Author
Honestly, isn’t this the most tedious and obscure topic covered in this Daily Quiddity blog? It is involved entirely in the mind-numbing minutia of tiny bureaucratic turf wars and various hair-splitting legal distinctions.
But this is an important, in fact a vital, story. You should be interested in it. In 2008 the financial markets and institutions of the G7, except for Canada, came to the edge of a full meltdown because of government guarantees and over-leveraged derivatives contracts. Lobbyists in Washington successfully hobbled corrective legislation, leaving the brunt of the effort to prevent future problems with the understaffed and inexperienced Securities and Exchange Commission. The various guidelines, once implemented, are subject to being struck down in court.
This means that sheer inefficient corrective measures, intentionally passed at the urging of lobbyists from the finance industry and designed to be under-implemented, leave the door wide open for a more serious future crisis.
The SEC has also become the final editor of all corporate financial audit and reporting guidance (the proclamations of the Financial Accounting Standards board). Inviting another catastrophe, the agency has quibbled with and watered down FAS 157, which would have market derivative contracts to market. There are hundreds of trillions of dollars of notational value of these derivative contracts in the United States (and over quadrillion dollars’ worth worldwide). The SEC has ordered auditing CPAs not to mark these contracts to market, intentionally under-informing investors and disserving the public.
The SEC has no significant prior experience in writing massive financial guidance nor auditing and reporting pronouncements. Therefore, the SEC is decreasing the security and integrity of large-scale American finance and financial markets. The public is further mis-served when these brushfire wars are presented as tedious news articles not worth scanning, when this pillow fight has the potential to bring about a fire in the financial markets so huge that no one, not the federal government itself, can extinguish it.
Reuters has issued a suffocatingly boring news story about this situation, an article written by Sarah Lynch with editing by Steve Orlofsky and Gary Hill. A link is below to the actual text.
Kotz wrote that the cost-benefit analyses used in making various rules varied and thus lacked consistency. This is an important finding because various business groups have taken action against the agency. One successful appeal rejected an SEC Dodd-Frank rule that sought to empower shareholders in more easily nominating directors to the boards of corporations. The court rejected this approach since the SEC had not weighed the economic consequences.
Some business groups, including the U.S. Chamber of Commerce, question other new rules pending at the SEC. The SEC is responsible, through the Dodd-Frank Act, for writing about 100 new rules to police financial markets and organizations which malfunctioned during the financial crisis of 2007-9. To make these rules, an avenue is required for allowing public comments on the proposals.
Kotz has issued two reports examining whether the economic analysis was consistent, in response to concerns brought up by the Senate Banking Committee, particularly ranking Republican member Richard Shelby (R-AL). SEC’s inspector general’s office retained Robert H,. Smith, a finance professor at the University of Maryland’s Robert H. Smith School of Business, to assist in the review.
Some of the activities examined included a rule permitting shareholders to hold non-binding votes on compensation, review of asset-backed securities rules, and proposals involving the reporting of "security-based swap data," or, in plain English, financial derivatives reporting.
Kotz’s report was critical of the SEC, noting that the agency’s former head lawyer had the opinion that the agency should perform thorough cost-benefit analyses on rules that are not explicitly required by Congress.
Friday's report covered a sample of Dodd-Frank rulemakings, including a rule allowing shareholders a non-binding vote on compensation, several asset-backed securities rules and two proposals pertaining to the reporting of security-based swap data.
Kotz's report was critical of the agency in a number of areas.
Rules mandated by Congress, however, generally would not need the same level of cost-benefit research, the memo said.
The attorney’s memo noted that rules mandated by Congress would not generally need the same level of cost-benefit analysis. SEC management disagreed because of "practical limitations" and "the distinct roles of Congress and administrative agencies."
SEC management noted:
http://news.yahoo.com/exiting-watchdog-sees-flaws-secs-rulewriting-012447581.html
= = = = = = = = = = = = = = = = = = = = = = =
Comments by the Blog Author
Honestly, isn’t this the most tedious and obscure topic covered in this Daily Quiddity blog? It is involved entirely in the mind-numbing minutia of tiny bureaucratic turf wars and various hair-splitting legal distinctions.
But this is an important, in fact a vital, story. You should be interested in it. In 2008 the financial markets and institutions of the G7, except for Canada, came to the edge of a full meltdown because of government guarantees and over-leveraged derivatives contracts. Lobbyists in Washington successfully hobbled corrective legislation, leaving the brunt of the effort to prevent future problems with the understaffed and inexperienced Securities and Exchange Commission. The various guidelines, once implemented, are subject to being struck down in court.
This means that sheer inefficient corrective measures, intentionally passed at the urging of lobbyists from the finance industry and designed to be under-implemented, leave the door wide open for a more serious future crisis.
The SEC has also become the final editor of all corporate financial audit and reporting guidance (the proclamations of the Financial Accounting Standards board). Inviting another catastrophe, the agency has quibbled with and watered down FAS 157, which would have market derivative contracts to market. There are hundreds of trillions of dollars of notational value of these derivative contracts in the United States (and over quadrillion dollars’ worth worldwide). The SEC has ordered auditing CPAs not to mark these contracts to market, intentionally under-informing investors and disserving the public.
The SEC has no significant prior experience in writing massive financial guidance nor auditing and reporting pronouncements. Therefore, the SEC is decreasing the security and integrity of large-scale American finance and financial markets. The public is further mis-served when these brushfire wars are presented as tedious news articles not worth scanning, when this pillow fight has the potential to bring about a fire in the financial markets so huge that no one, not the federal government itself, can extinguish it.
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