SEC Withdraws 14 Rulemaking Proposals
Commentary by Steven Lofchie
The SEC withdrew proposed rulemakings that were issued between March 2022 and November 2023. The SEC stated it "does not intend to issue final rules with respect to these proposals" and, if the SEC "decides to pursue future regulatory action in any of these areas, it will issue a new proposed rule."
The withdrawn proposals include:
- Proposed Amendments to the National Market System Plan Governing the Consolidated Audit Trail To Enhance Data Security. The amendments would have (i) increased security requirements for the use of CAT data and (ii) reduced the scope of sensitive information required to be collected. (See related coverage.)
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Cybersecurity Risk Management Rule for Broker-Dealers, Clearing Agencies, Major Security-Based Swap Participants, the Municipal Securities Rulemaking Board, National Securities Associations, National Securities Exchanges, Security-Based Swap Data Repositories, Security-Based Swap Dealers, and Transfer Agents.
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Regulation Systems Compliance and Integrity. The amendments would have expanded the scope of the regulation to cover, among other entities, large broker-dealers, as defined by various measures of size. (See related coverage.)
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Order Competition Rule. The amendments would have established regulations to "promote a more competitive, transparent, and efficient market structure for NMS stocks." (See related coverage.)
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Regulation Best Execution. The amendments would have established a best execution regulatory framework for broker-dealers, government securities broker-dealers and municipal securities dealers, and enforced written policies and procedures designed to comply with the best execution standard. (See related coverage.)
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Volume-Based Exchange Transaction Pricing for NMS Stocks. The amendments would have prohibited national securities exchanges from offering volume-based transaction pricing to broker-dealers executing agency or riskless principal orders in NMS stocks. (See related coverage.)
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Prohibition Against Fraud, Manipulation, and Deception in Connection With Security-Based Swaps; Prohibition against Undue Influence over Chief Compliance Officers. As adopted, the final rules aimed at preventing fraud and manipulation involving security-based swaps transactions and an amendment to prohibit undue influence on security-based swap dealers' chief compliance officers. (See related coverage.)
Commentary
Under former SEC Chair Gensler, the SEC put forward rule proposals and adopted rules at a remarkable pace, although it seemed a good deal of the time, without regard for whether the rule was (i) permitted by statute, (ii) solved a problem, (iii) practical, (iv) comprehensible, or (v) cost-justified. Much of the damage, and potential damage, is now undone.
The most significant impacts of Mr. Gensler's tenure come from the reduction in the time of settlement from T+2 to T+1, the mandate for the clearing of US governments (which will likely be scaled back before effectiveness), and the consequences for the failure to develop a plan as to how digital assets should be regulated (other than by the bringing of enforcement actions.)
This period of failed rule making should cause the SEC (and likely other rule makers) to institutionalize and formalize an improved rule making process. Any significant rule proposal should be preceded by a concept release in which public input is sought as to the actual existence of a problem needing to be solved, along with potential solutions, and the likely cost of those solutions. Further, when a significant rule proposal is put forward, a minimum of 90 days should be allowed for public comment, at least in the absence of some emergency.
Related Articles
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The SEC proposed amendments to the national market system plan governing the Consolidated Audit Trail that would (i) increase security requirements for the use of collected data and (ii) reduce the scope of sensitive information required to be collected.
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The SEC proposed amendments to Regulation Systems Compliance and Integrity that would expand the scope of the regulation to cover, among other entities, large broker-dealers, as defined by various measures of size.
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The SEC issued four new rule proposals aimed at reforming the structure of U.S. capital markets.
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The SEC proposed a rule that would prohibit national securities exchanges from offering volume-based transaction pricing to broker-dealers executing agency or riskless principal orders in NMS stocks.
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The SEC adopted final rules aimed at preventing fraud and manipulation involving security-based swaps transactions and an amendment to prohibit undue influence on security-based swap dealer chief compliance officers.