SEC COMMISSIONER GALLAGHER'S ADDRESS TO SYMPOSIUM ON BUILDING FIANCIAL SYSTEM OF THE 21ST CENTURY

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Key Note:
Symposium on Building the Financial System of the 21<sup>st Century: An Agenda for Europe and the United States

by
Commissioner Daniel M. Gallagher
U.S. Securities and Exchange Commission
Washington, D.C.
March 21, 2013
Rüschlikon, Switzerland
March 21, 2013

Thank you very much, Hal [Scott] for that kind introduction and for inviting me to speak here today. It is a great pleasure to be here at a conference devoted to promoting trans-Atlantic dialogue between the U.S. and Europe.

Before I start, let me keep my chief ethics officer happy and advise you that my remarks here today are my own and do not necessarily represent the views of the SEC or my fellow Commissioners.

We in America have been blessed with a wonderful combination of geography, natural resources, and free market principles. These and other factors have allowed our economy and our financial system, including our capital markets, to thrive in the post-World War II era.

Although the United States has suffered its share of financial crises, most recently the one that erupted in 2008, our free market economy and robust capital markets have conferred an enviable prosperity on our people over a period of many years, and few in America can remember a time when the United States did not have strong and competitive capital markets.

However, the very strength and resilience of our capital markets could lead us to fall into the trap of believing that we are somehow entitled to such prosperity. Indeed, such a sense of complacency may well have taken root in our government and may threaten to jeopardize that prosperity. The reality is that we live in a world in which we must be constantly vigilant — sometimes taking affirmative action, but more often choosing not to act — in order to preserve the vitality of our markets.

An important part of my job, and that of my colleagues on the Commission, is to ensure that America’s capital markets remain strong, vibrant, and competitive. That’s not just good for U.S. investors, but also for other investors around the world. And, conversely, the rise of robust capital markets in other parts of the world has the potential to benefit the United States and the American people as well.

Today, financial services firms and investors are able to transact their business in markets around the world without leaving the confines of their homes or offices, much less their home jurisdictions. Companies are increasingly eschewing traditional venues like London or New York and instead turning to rising markets in Asia, Latin America, the middle east, and elsewhere for their capital needs.

Indeed, policymakers, business and financial industry representatives, and other market participants in the United States have been concerned about these developments for some time. In a November 2006 opinion piece in the Wall Street Journal, U.S. Senator Charles Schumer of New York and New York City Mayor Michael Bloomberg sounded the alarm about challenges to New York City’s status as the financial capital of the world.
1 In the preface to a consulting report commissioned by New York on this issue, Senator Schumer and Mayor Bloomberg acknowledged other international financial centers’ challenges to New York’s status, warning that "we can no longer take our preeminence in the financial services industry for granted."2

In March 2007, a report issued by a bipartisan commission established by the U.S. Chamber of Commerce identified and analyzed a number of these emerging challenges for U.S. capital markets.3 The report cited more than 70 years of capital markets excellence enjoyed by the United States and the "unmatched prosperity" that came with it, but also noted that the United States was steadily losing market share to other international financial centers.4 The report drew a distinction between two types of causes for this shift in market share. On the one hand, the report explained, this shift was "a reflection of natural economic and market forces that cannot, and should not, be reversed" and that indeed the development of European and Asian markets was a "positive development for the United States."5 However, the report also cited internal, self-inflicted factors — such as an increasingly costly regulatory environment and the burdensome level of civil litigation — as negatives that should be corrected.6 Later, in March 2008, the Chamber’s Center for Capital Markets Competitiveness issued a report calling for a modern, coherent regulatory structure and fair legal, regulatory, and enforcement processes.7 In this report, they cited "robust global competition from overseas markets" and noted that "[t]he reality is that America is no longer the sole capital markets superpower."8

In November 2006 and December 2007, the Committee on Capital Markets Regulation, an independent and nonpartisan research organization led by Hal Scott, issued a pair of reports calling attention to the declining competitiveness of the U.S. public equity markets.9 Among other things, the Committee cited a significant decline in the U.S. share of equity raised in global public markets, a precipitous decline in the U.S. share of the twenty largest global IPOs, and a legion of statistics indicating that foreign and domestic issuers were taking steps to raise capital either privately or in overseas markets rather than in the U.S. public equity markets.10

In November 2007, the non-partisan Financial Services Roundtable added its voice to this growing chorus, issuing a detailed blueprint for maintaining U.S. financial competitiveness.11 This blueprint noted the decades-long prosperity enjoyed by U.S. financial markets and firms, but concluded that this landscape was changing dramatically.12 The report went on to cite the relentless growth of foreign capital markets and the development of modern regulatory regimes in foreign jurisdictions. The report concluded that the United States should make changes to its regulatory system that would enable it to adapt and respond to "growing global competition," "innovative market developments," and "the dynamic financial needs of all consumers."13

In March 2008, then-U.S. Treasury Secretary Hank Paulson neatly summed up these concerns in the Treasury Department’s blueprint for reshaping the U.S. financial regulatory system:
Due to its sheer dominance in the global capital markets, the U.S. financial services industry for decades has been able to manage the inefficiencies in its regulatory structure and still maintain its leadership position. Now, however, maturing foreign financial markets and their ability to provide alternate sources of capital and financial innovation in a more efficient and modern regulatory system are pressuring the U.S. financial services industry and its regulatory structure. The United States can no longer rely on the strength of its historical position to retain its preeminence in the global markets.
14
That same month, the financial crisis in the U.S. began in earnest with the bailout of Bear Stearns, followed by the bankruptcy of Lehman Brothers in September 2008 and the low point of the U.S. equities markets in March 2009. In July 2010, well before the complex causes of the financial crisis were sorted out and understood by policymakers, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act as its reaction to the meltdown.

Unfortunately, this legislative response to the financial crisis bore little resemblance to the competitiveness-enhancing regulatory reform contemplated by pre-crisis regulators and market participants. The Dodd-Frank Act was not a carefully crafted product of bipartisan compromise, as opposed to the Congressional response to the stock market crash of 1929. Rather, Congress — having been exhorted not to let a crisis go to waste — allowed the urgent need for regulatory reform to be overwhelmed by a grab bag of disparate wish-list items, many of which had nothing to do with the financial crisis but were derived instead from long-held ambitions of policymakers, bureaucrats, and special interest groups.

What continues to amaze me about Dodd-Frank is not only what it covers in its 2319 pages, but also the crucial regulatory issues that it failed to address. For example, the act mandates that the SEC create unprecedented new disclosure rules relating to conflict minerals from the Congo — but it omits any mention of money market mutual funds, which Dodd-Frank’s own FSOC tells us are ticking time bombs of systemic risk. The Act requires disclosure of extractive resource payments made by U.S.-listed oil, gas, and mining companies — but it leaves the reform of Fannie Mae and Freddie Mac for another day. The Act was intended to end "too big to fail," but in reality it enshrined that concept by creating an entire system of special regulation for financial institutions that are "systemically important." This system threatens to aggravate the problem by conferring a competitive advantage on these already "too big to fail" institutions.

Rather than responding appropriately to the crisis, which would include developing a modern regulatory system with the flexibility to adapt to changes in the global financial system, we instead have been saddled with an increasingly prescriptive and inflexible regulatory environment that is characterized far more by more regulation than by smart regulation. Put another way, Congress, in fact, did let a crisis go to waste. The calls for proactive reform contained in the various reports I mentioned were ignored when the patient was on the operating table. Far from cured, things have, indeed, gotten even worse. To extend the analogy, under the surgeons’ care, the patient’s infection turned into sepsis.

Rather than addressing the competitive concerns raised before the crisis by policymakers and business leaders, the Dodd-Frank Act represents a vast increase in precisely the type of regulation that raised those concerns in the first place. Indeed, Dodd-Frank marked a tremendous expansion of prescriptive financial regulation, with much of the law’s rulemaking burden, including about 100 of its 400 rulemaking mandates, falling on the SEC. The very volume of Dodd-Frank’s prescriptive mandates to the SEC has had the unintended effect of significantly limiting the agency’s ability to bring its traditional expertise and judgment fully to bear in the rulemaking process. In that sense, it has had a negative impact on the Commission’s ability to develop sound, sensible regulation and to adapt quickly and flexibly to the continuing transformation of global capital markets.

Given these limitations, how can the Commission and other capital markets regulators best approach the challenges of this brave new world? Recognizing that capital markets and their participants are becoming increasingly de-localized in a world where new and complex financial products are traded around the clock and across the globe, it is certain that financial products and the entities that trade them will be regulated in different ways in different countries. As products cross international borders and move from one jurisdiction to another, simultaneously satisfying each of the overlapping regulatory requirements of multiple jurisdictions can be costly to investors, not to mention confusing — and the only ones smiling are the lawyers.

In the past, the standard response to cross-border jurisdictional conflicts was to seek to negotiate one-size-fits-all norms for all to implement. That approach is increasingly seen as impractical and obsolete. Certainly, it cannot hope to keep pace with product development, trading techniques, and even national regulation. Still, we must recognize the significant impediment to global trading posed by duplicative regulation of the same transaction or activity.

The key, it seems to me, is for regulators to accept the reality that, as to any given financial product or activity, there are likely to be high quality regulatory regimes other than ours — or, for that matter, yours. With that in mind, it seems that the best way to ensure high quality, but not layered and oppressive, regulation of those products and activities will be for one jurisdiction to defer to another’s regulatory approach, at least in certain situations.

This is not a new idea — but implementing it effectively will require new approaches. Academics as well as regulators have developed formulations like "substantial equivalence" and "mutual recognition" to describe a situation in which one country’s securities regulators would defer to another’s when their securities regulations were, in substance, largely the same. The goal under such an approach is to allow one regulator to accept as sufficient the regulatory actions of a different regulator with respect to financial services activities and participants that span multiple jurisdictions. Accordingly, this deference would have to be mutual, not unilateral, to have any hope of achieving its objective.

Notwithstanding the complexities involved, exploring this concept strikes me as a matter of common sense, given the pace of change in our financial services world, with investment products evolving before regulations can be written to cover them.

The SEC began to explore concepts of regulatory equivalence about five years ago, an effort that yielded limited success. The financial crisis of 2008 forced the agency to shelve this initiative. Two years later, the extraordinary expansion of financial regulation stemming from the Dodd-Frank Act further clouded the regulatory landscape, even as it made conspicuous the point that a one-size-fits-all approach had become utterly impractical.

The issue of extraterritorial application of laws and rules is best illustrated by the current debate over how U.S. regulators will apply the OTC derivatives provisions of the Dodd-Frank Act to activities that cross national borders. Given the complexity of the overall regulatory scheme for derivatives set forth in Title VII of the Act, the question of how to apply that regime to cross-border transactions is significant. Because derivatives are perhaps the most global and mobile financial products that exist, with dealers and other intermediaries spread across the world trading products for widely dispersed clients, the SEC staff is, of necessity, discussing this matter with foreign regulators. We must, in addition, coordinate our efforts with our domestic colleagues at the CFTC, who were given responsibility for swaps that are not security-based — the vast majority of the market.

As most of you know, this has not been an easy exercise. As has been widely reported, the CFTC has taken a very aggressive approach, attempting to extend the reach of its OTC derivatives rules deeply into foreign jurisdictions. Not surprisingly, key foreign regulators have expressed serious reservations at the CFTC’s approach. You may recall that leading policymakers from the European Commission, the United Kingdom, France, and Japan wrote a joint letter to the CFTC requesting that it refrain from taking action that would risk fragmenting and damaging the derivatives market, arguing instead for an approach grounded in principles of regulatory equivalence and substituted compliance.15

Subsequently, in a joint statement issued after their November 2012 meeting, the leaders of twelve national and supranational entities responsible for regulating OTC derivatives expressed interest in regulatory approaches that included voluntary regulatory deference. In their statement, this diverse group of regulators agreed that some form of limited regulatory "recognition," acceptance of "substituted compliance," or specific "exemptions" "should be considered" in crafting regulatory regimes applicable to OTC derivatives, given the "need to prevent the application of conflicting rules and the desire to minimize … the application of inconsistent and duplicative rules."16 I, too, believe it will be critical to incorporate some sort of regulatory deference into any cross-border approach to regulating security-based swaps.

Reaching beyond derivatives, you will also know that the European Union has adopted an "equivalence"-based approach to enable deference to non-EU regulators in various areas, including the regulation of credit rating agencies. In the United States, the SEC’s rules implementing the Credit Rating Agency Reform Act of 2006 established a registration and oversight regime for CRAs that register with the SEC. Three years later, in the wake of the global financial crisis, the EU adopted a directive establishing its own regulatory scheme applicable to CRAs. The EU directive included a provision allowing for non-duplicative regulation where the CRA is subject to a regulatory regime the EU has found "equivalent" to its own.17 After some serious bumps and bruises during the early stages of the equivalency determination process, the European Securities and Markets Authority concluded that U.S. regulation of CRAs was, in fact, equivalent to that under the applicable EU regulations. This prompted the European Commission to follow with its own equivalency determination several months later.18

While this experience was not, from a U.S. standpoint, a shining endorsement of the equivalency experiment, I do not think the problem lies in the concept of "substituted compliance," so much as in the manner of its implementation. To succeed as it surely must, all involved will have to proceed without preconceptions, with clarity of vision, and perhaps with unaccustomed levels of restraint.

In other words, because the equivalency determination is the precondition to one jurisdiction’s acceptance of the regulatory actions of any other jurisdiction, it is inherently subject to misuse of a sort that would fly in the face of the very purpose of substituted compliance. It could, for example, be used as a chokepoint to force the other jurisdiction to regulate in the same way or to the same degree as the determining jurisdiction; it could be used as a protectionist tool, wielded for parochial and anti-competitive reasons.

So I want to stress: If "equivalency" and "substituted compliance" are to have a future — if international commerce in derivatives are not to be dragged down in regulatory confusion and cost — equivalency determinations must be made in good faith and with openness to approaches other than those of the evaluating entity or its political organs. Speaking on this topic, my colleague, CFTC Commissioner Jill Sommers, stressed the key point: "It is important that assessments of comparability be made at a high level, keeping in mind the core policy objectives … rather than a line-by-line comparison of rulebooks."19

And, I am very happy to report, a bipartisan bill introduced in the House of Representatives just two days ago strikes precisely the appropriate balance, requiring that the SEC and CFTC jointly issue rules on OTC derivatives that show deference to broadly equivalent foreign regulatory regimes. The House bill provides, in pertinent part, that the joint SEC-CFTC rules "shall provide that a non-U.S. person in compliance with the swaps regulatory requirements of a G20 member nation, or other foreign jurisdiction as jointly determined by the Commissions, shall be exempt from United States swaps requirements … unless the Commissions jointly determine that the regulatory requirements of the G20 member nation or other foreign jurisdiction are not broadly equivalent to United States swaps requirements."

Returning to my larger point: Much of America’s post-war prosperity has been driven by our free market economy and vibrant capital markets. More recent experience in other parts of the world, Europe included, underscores that connection. We must not take the vitality of our capital markets for granted. We must instead foster them, and in the process protect investors, whether large or small, domestic or foreign. We must all regulate in a balanced manner — smartly.

Smart regulation today requires, at a minimum, that we keep pace with the evolution of global markets, but that we do so without adding unnecessary costs — that we avoid imposing layers of complex, overlapping, and, to that extent, incoherent regulation. We must not look in isolation at the potential benefits of regulation, but also in each instance at whether they are sufficient to justify the costs that they entail. And we can, I submit, increasingly keep pace with developments in the industries and markets we regulate, while reducing the burdens we impose on those we regulate, by deferring to our peer regulators in appropriate situations.

Thank you very much for your kind attention, and I wish you a productive and successful conference.


1 Hon. Charles E. Schumer & Hon. Michael R. Bloomberg, Op-Ed., To Save New York, Learn From London Wall St. J., Nov. 1, 2006, http://online.wsj.com/article/SB116234404428809623.html.


2 Hon. Michael R. Bloomberg & Hon. Charles E. Schumer, Sustaining New York’s and the US’ Global Financial Services Leadership, at i (2007).


3 Commission on the Regulation of U.S. Capital Markets in the 21st Century, Report and Recommendations (2007) [hereinafter 21st Century Report].


4 21st Century Report, at 11, 15.


5 21st Century Report, at 11 and 17.


6 21st Century Report, at 16.


7 Center for Capital Markets Competitiveness, Strengthening U.S. Capital Markets: A Challenge for All Americans, at 4, 23-26 (2008) [hereinafter Strengthening U.S. Capital Markets].


8 Strengthening U.S. Capital Markets, at 3.


9 Committee on Capital Markets Regulation, Interim Report of the Committee on Capital Markets Regulation (2006); Committee on Capital Markets Regulation, The Competitive Position of the U.S. Public Equity Market (2007).


10 See, e.g., The Competitive Position of the U.S. Public Equity Market, at 1-5.


11 The Financial Services Roundtable, The Blueprint for U.S. Financial Competitiveness (2007).


12 See The Blueprint for U.S. Financial Competitiveness, at 7.


13 The Blueprint for U.S. Financial Competitiveness, at 8.


14 The Department of the Treasury, Blueprint for a Modernized Financial Regulatory Structure, at 2 (2008).


15 See Letter from Hon. George Osborne, Hon. Michel Barnier, Hon. Ikko Nakatsuka, and Hon. Pierre Moscovici to Hon. Gary S. Gensler (Oct. 17, 2012), available at http://www.fsa.go.jp/en/news/2012/20121018-1.html.


16 See "Joint Press Statement of Leaders on Operating Principles and Areas of Exploration in the Regulation of the Cross-Border OTC Derivatives Market" (Dec. 4, 2012) (relating to Nov. 28, 2012 meeting), SEC Press Release No. 2012-251, at item 4.


17 Regulation (EC) No 1060/2009 (Sept. 16, 2009), Art. 5(6), OJ L 302 (Nov. 17, 2009), at 1.


18 European Commission Implementing Decision 2012/628/EU, October 5, 2012, OJ L 274/32 (9 Oct. 2012). In separate decisions on the same day, the EU also found the CRA regulations of Australia and Canada equivalent to those of the EU.


19 Statement of Commissioner Jill E. Sommers at a hearing of the Subcommittee on General Farm Commodities and Risk Management, Committee on Agriculture, U.S. House of Representatives, Dec. 12, 2012.</sup>

SEC COMMISSIONER GALLAGHER SPEAKS ON SEC PRIORITIES

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
U.S. Securities and Exchange Commission
Commissioner Daniel M. Gallagher

SIFMA Regional Conference
Charlotte, N.C.
September 24, 2012
Thank you, Ken, for that kind introduction. It is a true honor to be here with you today.

As you all expect, I must tell you that my remarks today are my own, and they do not necessarily represent the views of the Commission or of any other Commissioner.

I would like to talk today about regulatory distraction. By that, I mean a state of affairs in which a regulatory body is so inundated with external mandates that it risks losing focus of its core responsibilities. Given the mandates flowing from Congress, in particular those in the massive, 2319 page Dodd-Frank legislation, this is a condition that we at the Commission must be very careful to avoid.

As the newest Commissioner at the SEC – I started just over ten months ago, I knew I was coming back to the agency during an intensely regulatory and reactive period, given the Dodd-Frank mandates, the response to the Madoff and Stanford Ponzi schemes, and the reaction to allegations of policy failures leading up to the crisis. Indeed, I was on the Staff before and during the crisis, and later during the negotiation of what eventually became Dodd-Frank, so this was no surprise. I assumed I would be faced with two major tasks – evaluating and voting on regulations responsive to the financial crisis, and working to ensure that the Commission maintains a clear focus on its core responsibilities. To be sure, we are busy working on many of these activities, but the balance is not what you might have expected it to be.

Dodd-Frank was enacted to, among other things "promote the financial stability of the United States by improving accountability and transparency in the financial system, to end "too big to fail," and to protect the American taxpayer by ending bailouts." These are all extremely laudable goals. However, the statute's goals and its mandates are often unrelated.

All-told, Dodd-Frank contains approximately 400 specific mandates to be implemented by agency rulemaking. A conservative estimate assigns almost 100 Dodd-Frank mandates to the SEC for implementation by rule. Many of those have statutory deadlines. The SEC has adopted final rules implementing nearly a third of those statutory mandates. So while the SEC, like other financial sector agencies, will be busy implementing Dodd-Frank for a long time to come, it is equally true that one immediate effect of Dodd-Frank was to increase dramatically both the volume and pace of SEC rulemaking. It is not an exaggeration to say that the Commission is handling ten times the normal rulemaking volume. And "normal" was the post Sarbanes-Oxley normal, which was a marked increase from the pace before that law’s enactment. Any one of the rules we promulgated in the last three months would have been considered the "rule of the year" just five or six years ago. The pace is unrelenting, and the substance is critically important to the U.S. capital markets. We need to get a lot done fast – no question about it – but it’s even more important that we get it right.

Some Dodd-Frank mandates are more responsive to the financial crisis than others. Some are not responsive at all, derived instead from long-held ambitions of policymakers, bureaucrats, and special interest groups. For example, the mandate in Dodd-Frank Section 939A for federal agencies to remove references to credit ratings from their rulebooks may well be the clearest, most direct mandate we at the SEC have been given. It has the virtue of being responsive to one of the core problems underlying the financial crisis – over reliance on credit ratings by investors and regulators during a time when the rating agencies were falling down on the job.

On the other side of the coin, a majority of the Commission - which I was not part of - just approved final rules under Sections 1502 and 1504 of Dodd-Frank, which mandated unprecedented new disclosure rules relating to conflict minerals from the Congo, and extractive resource payments made by U.S. listed oil, gas and mining companies. These statutory provisions and the rules based on them were meant to serve laudable humanitarian and geo-political purposes. Specifically, they are aimed at curtailing armed violence in the Congo and increasing the accountability of governments worldwide to their citizens. I wholeheartedly support those goals, but I believe that the SEC is the wrong tool with which to accomplish them.

Even so, given the extreme costs associated with both these new rules, I very much hope they somehow have the desired effect. It is, nevertheless, undeniable that these two rules have nothing whatever to do with the goals of the Dodd-Frank Act, which I quoted to you earlier. These new rules don’t address the crisis; they don’t make a future crisis less likely. Indeed, these new rules have nothing to do with the SEC’s statutory mission. It is appropriate to be skeptical of our prospects in achieving objectives the SEC was not designed or staffed to achieve. But laws are laws, so we spent a very significant amount of time working on the final rules – certainly as much - and likely more - than we did on any other rules we have handled since I arrived.

And now the key difference between the 939A credit rating removal and 1502 and 1504 social mandates is that the latter are completed, while the former remains substantially unfinished over a year after the congressional deadline. This raises the question of whether our priorities are as they should be. Given that the Commission has been analyzing the removal of rating agency references since former Chairman Cox and the Commission proposed removing them in 2008, I hope the staff will put forward a recommendation soon on the two most significant SEC rules embedded with such references - the so-called net capital rule, and the money market fund rule. Action on these matters would not only satisfy a Dodd-Frank congressional mandate, but it would be a long-delayed and much needed step towards addressing a core problem infecting the U.S. financial markets and regulatory system. More than any other action the Commission has taken since Congress took bold action to give the SEC formal oversight authority over credit rating agencies, fulfillment of the 939A mandate, if done properly, would serve to protect investors and markets alike from the failures of the credit rating agency industry.

* * *

There are, of course, several other similarly stark comparisons one could just as readily draw from among the SEC’s Dodd-Frank mandates. We have Title VII mandates that require us to create a regulatory regime for OTC derivatives, and at the same time we have a Title IX mandate to create, along with the MSRB, an entirely new regulatory program for municipal advisors. One of these things is not like the other. While there is a debate about whether OTC derivatives were a cause of the financial crisis, few would doubt that they exacerbated many of the problems faced by regulators and market participants during the crisis. In particular, because of the opacity of those markets, they presented a significant unknown to regulators. Putting aside the wisdom of some of the more complicated Title VII mandates, moving towards transparency in this area makes good sense. Regulation of municipal advisors, on the other hand, is an area wholly outside the context of the crisis. I support efforts by the Commission to gain a more sophisticated understanding of the municipal securities markets - directly as well as through MSRB efforts. I am skeptical, however, that a mandated set of rulemakings to regulate a broad category of municipal advisors is the most appropriate use of regulatory resources at this time.

It’s all about priorities and relative priorities. Because of these disparate statutory mandates, many of which are not grounded in the crisis, the SEC is left with a long list of decisions to make. Decisions about how to prioritize and sequence the rulemakings, decisions about how to give effect to each separate mandate as we tackle them, and decisions about the utility of pursuing certain mandates instead of going back to Congress to seek reconsideration when the mandates simply don’t make sense given our statutory mission.

At the same time, it is important that we recognize that there are areas that are crisis-related, but are not addressed or even referenced in Dodd-Frank. They nevertheless warrant Commission time and resources – perhaps on a considerably more pressing basis than certain of the Dodd-Frank mandates. The number one issue at the SEC that falls into that bucket is – still today – money market fund reform. Believe it or not, money markets funds, despite being called by some the third rail of systemic risk, and despite featuring prominently in the financial crisis, were not addressed in 2319 pages of financial crisis legislation. And now this, as most of you have probably seen, has become a highly contentious issue at the Commission. Despite recent headlines, I hope and expect that the Commission will make a decision on appropriate reforms in this area soon after our economists have conducted an analysis of the key issues Commissioners Aguilar, Paredes, and I have raised. Acting without the benefit of such an analysis - in the context of a $2.5 trillion industry critical to investors, municipalities, and other issuers - would, quite frankly, be irresponsible.

There are, in addition, other areas within the SEC’s jurisdiction that were subjected to stresses during the crisis, but certainly were not, in any sense, causes of the crisis. They, too, beg for our attention. In that bucket, a primary concern for me is the Securities Investor Protection Act, or SIPA. As many of you know, SIPA, which authorized the creation of SIPC, was enacted by Congress after the back office crisis of the late ‘sixties. Although it is relatively young compared to some of the statutes we are charged with implementing, SIPA is in serious need of reconsideration given problems that have arisen following the failure of Lehman Brothers, the Madoff Ponzi scheme, the Stanford Ponzi scheme, and still other, lesser failures. As it stands now, SIPA is a mystery not only to investors, but arguably even for SIPC members.

And there is a laundry list of other areas of basic "blocking and tackling" to which the Commission needs to pay considerably more attention. In that bucket, I would place updating our rules regarding transfer agents, final rules for the 17h broker-dealer risk assessment program, and hopefully soon a final rulemaking implementing the so-called Onnig amendments, which contain important net capital and customer protection rule amendments. And on a topic near and dear to this audience, I continue to believe that the Commission needs to provide guidance to the industry regarding failure to supervise liability for legal and compliance personnel, and I hope we can find the right vehicle to do that in the near future.

And, of course, we need to finally move forward with considering rules that will update and formalize the Automation Review Policy, or ARP. The ARP program has been voluntary since it was created in response to the 1987 market crash. Recent events in the equities markets have raised concerns about exchange controls, and it is my hope that the upcoming technology roundtable and related interaction with stakeholders will provide the Commission with sufficient data to thoroughly evaluate our options, and ultimately allow the Commission to make appropriate policy choices in an ARP rulemaking process.

* * *

So we come back to the purpose of the SEC as an expert independent agency. The SEC’s mission is threefold: "protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation."

And that brings us to the key question: Given that threefold mission, given the conditions we are actually experiencing four years after the 2008 crisis, is the SEC spending its time as it should? Do the priorities reflected in the SEC’s current rulemaking agenda stem from our expert appreciation of current market conditions and the most pressing problems within them? Do they, moreover, reflect the SEC’s proper situation in the regulatory constellation? By what criteria or standards do we seem to set our priorities? To what extent do our apparent priorities stem from other agencies’ policy preferences or institutional mandates?

Those questions seem to me well worth critical consideration. After all, the SEC can’t do everything. The Commission and its staff’s time and attention are more limited commodities than are policy options in Washington – especially if our solutions need not address any demonstrable problem. And we, as an agency, no less than individually, find ourselves surrounded with many superficially attractive ways to distract ourselves.

* * *

Our agenda is necessarily shaped by legislation. Dodd-Frank and the JOBS Act are the current headline-grabbers. But, we must not forget the fundamentals; we must not lose sight of our core mission.

And when we engage in any rulemaking, we must heed the statutory requirements that seek to ensure that our rules are based on sound analytic foundations, rather than policy preferences alone. When we write rules, we are required to consider how the rule will protect investors, as well as whether it will promote efficiency, competition, and capital formation." When the Commission engages in Exchange Act rulemaking, we must consider the "effect on competition" of the proposed rule, with the proviso that we may not adopt the rule if the burden it would impose on competition is not "necessary or appropriate in furtherance of the purposes of the act." And we are subject to the generally applicable "notice and comment" rulemaking process established under the Administrative Procedure Act of 1946, which not only requires us to put out our proposed rules for public notice and comment, but also provides that our rules may be set aside if they are "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law." The SEC is subject to a rigorous economic analysis requirement, and we must ensure that we, in turn, apply the same rigor to substantive SRO rule filings.

* * *

So where does all this leave me? What lesson do I find in the Commission’s scatter-shot menu of short-term and reactive priorities? Largely this: It’s important for the SEC to prioritize the basics – the "blocking and tackling" under our original statutory mandate, but in the context of the new realities of our markets. And with respect to the JOBs Act, we must understand that each of the congressional mandates involves a core area of SEC oversight.

Where Congress has seen fit to send us to exercise discretion in novel areas, we should carefully assess the facts and all relevant data in their full context, including potential knock-on effects of our possible responses before we act. Where Congress gives us a simple direction to act in a precise manner not susceptible to discretionary quibbling – like removing the ban on general solicitation pursuant to section 201(a) of the JOBS Act – we should use our full procedural armory to do so without delay.

And all the while, let's not forget common sense: foreign policy should be left to the State Department, and economic analysis to economists. And, for that matter, environmental science to the scientists. The Commission should not be afraid to use its exemptive authority as necessary to ensure that our rules don’t have needlessly burdensome or counterproductive effects as applied. That is why Congress gave it to us. And where job creation and capital formation are at issue, the Commission should be doing everything in its power to fulfill its statutory obligation to facilitate positive change. That, too, is our job.

Thank you all for your attention. I wish you a successful and educational conference.