Commissioner Daniel M. Gallagher
Dec. 5, 2013
It is a real privilege to join in welcoming you to the closed meeting of the “CEE Capital Market Summit.” Although I unfortunately am not able to join you in person this [morning], I look forward to discussing the results of this important conference in person with some of you when I am in Warsaw next week.
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Today, I am particularly proud to represent the continuation of a highly constructive partnership with Polish capital markets authorities that began during the first Bush Administration, in the earliest days of Poland’s emergence from its forced economic hibernation under Communist rule. Poland’s economic leadership in Central Europe over the past twenty years is unmistakable. In Poland, as elsewhere, History’s verdict is unambiguous: A free people active in free markets is the best assurance of freedom and prosperity.
In 1992, as Poland continued the process of developing its post-Communist economy, our former Chairman Richard Breeden posted a senior SEC officer, Robert Strahota, to Poland to work with Chairman Leslaw Paga of the new Polish Securities Commission. The Polish Ministry of Privatization had fostered the creation of the Polish Securities Commission, along with the newly reopened Warsaw Stock Exchange. In fact, the Warsaw Stock Exchange re-opened in the former headquarters of the Polish Communist Party — a wonderful irony, if ever there was one!
The U.S. SEC assisted our Polish colleagues in drafting and implementing their new securities laws — for example, by providing guidance concerning the examination and regulation of broker-dealers. Indeed, I am told that a plaque in a meeting room of the Polish Securities Commission commemorates this historic U.S.-Polish cooperation at a pivotal moment in Poland's modern history. I look forward to seeing it next week.
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Turning to the present — and the future — let me take a few minutes to comment on a few important topics that relate to, but go somewhat beyond the scope of, the specific questions raised in the “megatrends” questionnaire you have been considering.
First, capital markets are, and must remain risk-taking markets. To eliminate risk is to eliminate opportunity, to quash individual initiative and economic dynamism. No nation concerned with the liberty and prosperity of its citizens, to say nothing of its overall economic welfare, can afford to do that. The pursuit of risk-free markets that appears to be the goal of some regulators across the globe today is sheer folly.
Second, the protection of investors is rightfully among the top priorities of any capital markets regulator, however protection cannot mean a nanny state effort to eliminate investor choice. We at the U.S. Securities and Exchange Commission have a threefold mission: to foster capital formation, ensure fair and efficient capital markets, and protect investors. These three are inextricably intertwined. Consequently, our goal is a balanced approach to the regulation of capital markets and their participants. It is because innovation and economic dynamism ultimately entail some level of investor risk that we run a disclosure-based regulatory regime — that is, we believe that making timely and accurate information available to potential investors will enable them to make appropriate investment decisions and to take risks responsibly.
Third, as we are reminded almost daily, doing things as we always have done them does not necessarily mean we are doing things in the best possible way. We capital markets regulators must continually evaluate our rules, policies, and programs to make sure they are of real benefit to investors and markets, and are not imposing undue economic burdens. We can achieve this through formal processes such as retrospective rule reviews, which are required to be conducted by the SEC, but to date have not been undertaken.
Finally, I would add a caveat closely related to my first point: Regulators do not operate in an economic vacuum, nor are new regulations cost free. Capital markets regulators must always be mindful of the fact that capital formation fosters the growth of businesses and thereby job creation. And those, of course, are the backbone of any vigorous economy. Accordingly, while it can be tempting to issue ever more — and more complex — rules, particularly in the wake of an economic crisis, we must bear in mind that our actions carry costs, and we must ensure that those costs do not exceed the economic benefits we anticipate will arise from new regulations. It is, in other words, the economic activity fostered by regulation, not regulation per se, that has inherent value. Bearing that point in mind is fundamental not only to the ultimate success of each of our national regulatory initiatives, but also to those arising from the deliberations of regional and multi-national bodies.
I commend these thoughts to you for your consideration as you begin your conference, and look forward to discussing your observations next week.
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I began by noting that the SEC’s engagement with modern Polish securities markets began under the leadership of President Bush — building on President Reagan, whose administration laid the foundation for the collapse of the vast totalitarian Communist edifice in Central and Eastern Europe. Poland was and is at the cutting edge of the post-Soviet renaissance that followed, and twenty-plus years on, Poland is an important member of the European Union in its own right and fully engaged in capital markets worldwide. Our concerns and yours remain closely related — fostering free markets for a free people.
And with that, I thank you again and wish you a very rewarding conference.
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