In a speech before the Investment Company Institute 2014 Mutual Funds and Investment Management Conference, Craig Lewis, SEC Chief Economist and Director of the Division of Economic and Risk Analysis (“DERA”), discussed the economic analysis conducted by the SEC in rule proposals and analyses.
Director Lewis explained that the 2012 Memorandum Current Guidance on Economic Analysis in SEC Rulemaking (“Memo”) outlines the SEC’s approach to “robust” economic analysis. Additionally, Director Lewis said that the Memo “states the fundamental precept that economists are part of the rulemaking process from the very start, and thus involved in those crucial policy discussions that occur before words are ever committed to paper.”
Director Lewis laid out the four basic elements of a “robust” economic analysis:
- identify the need for the regulatory action;
- articulate the “baseline” against which any potential economic effects can be measured;
- explain alternative approaches to reaching the regulatory goal; and
- lay out the economic impact, including the costs and benefits, of the regulatory action and its principal regulatory alternatives.
Director Lewis further addressed the scope of the guidance, which he stated is not limited to development and drafting rule releases, pointing out that DERA oversees various policy initiatives at the SEC that do not directly relate to drafting rules. Director Lewis explained that DERA has worked very hard to describe in quantitative terms the current market conditions, perform sophisticated analyses of the credit default swap market and, as a general matter, describe the economic trade-offs in an “even-handed manner” when analyzing the potential effect of the SEC’s rules.
Lofchie Comment: It would be helpful to have the views of the CFTC, as well as of FINRA and the NFA, on their approach to economic analysis. Ideally, it makes sense for all of the principal securities/commodities regulators to adopt a common approach to rulemaking.
See: Craig M. Lewis’s Speech.