NCPA - National Center for Policy Analysis


November 9, 2004

The Securities and Exchange Commission (SEC) has proposed major changes to its rules and regulations that are seemingly unsupported by empirical evidence, writes Peter Wallison of the American Enterprise Institute.

According to Wallison, there are three SEC recommendations that could undermine the effectiveness of the stock market:

  • The SEC will impose a shareholder access rule, which would allow shareholders to nominate candidates for membership on a corporation's board, ostensibly to help dissatisfied shareholders; unfortunately, this process is unnecessary and intrusive because "mistreated" shareholders already have an effective remedy: sell company stock.
  • The SEC will require that all mutual funds have independent chairs, despite the evidence showing mutual funds actually perform better when the chairs are connected to the investment adviser.
  • The SEC plans to modernize the regulatory framework for the National Market System (NMS), but there has been no analysis performed that demonstrates the benefits and costs to investors and companies.

Ultimately, should the SEC follow through on these reforms, Wallison says, the agency will forfeit its reputation for thorough and unbiased work on behalf of investors and will have squandered the opportunity to develop a U.S. securities market that will best serve investors in the future.

Source: Peter J. Wallison, "Shooting from the Hip: The SEC Has Stopped Doing Its Homework," American Enterprise Institute, October 2004.

For text: American Enterprise Institute: Shooting from the Hip


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