In a speech at the SEC, Commissioner Aguilar stated that an SRO Outreach Conference will soon be held to address the need for robust SEC oversight over and collaboration with the securities industry self-regulatory organizations (“SROs”).
Aguilar further remarked that the SROs are faced with increased competition from electronic communications networks and foreign trading markets. Due to the fact that SROs must attract order flows to stay in business, this may, he suggested, lead them to be less inclined to enforce rules vigorously against members, issuers, and shareholders. Aguilar went on to state that SROs have in the past favored one member or customer over another, creating a conflict of interest. He asserted that “over the years, there have been a growing number of enforcement actions by the Commission against SROs, who failed to meet their legal and regulatory obligations under the law.” In this regard, he listed seven significant cases that the SEC had brought in the past fourteen years. He stated that new competitive challenges and continued conflicts of interest require a closer working relationship between SROs and the SEC.
Lofchie Comment: Recently, the SEC proposed new Regulation SCI, which would impose substantial additional compliance responsibilities on SROs, and also make it much easier for the SEC to sanction an SRO whose technology failed. So, clearly part of the message is that SROs are increasingly under the microscope and in danger of becoming the subject of enforcement actions.
Suggestion that things are getting more evil in the financial industry is troubling; i.e., the Commissioner’s statement that “over the years, there have been a growing number of enforcement actions. . . . ” There has always been a certain amount of misconduct in the financial industry, just as in every other industry. It may be simply that enforcement is tougher today than ever before. The ongoing depiction of the financial industry – worse than ever, and worse than others – does not seem fair. Worse, it encourages a spiral of hypercriticism of the industry that may be overdone.
Click here to view speech in full (links externally to SEC website).