Remarks Before the SEC / Academy of Finance Student Shadowing Program
Commissioner Daniel M. Gallagher
April 3, 2014
Thank you, Tyler [Kirk], for that especially kind introduction. Tyler, like myself, is a former SEC intern. We’ve also both had the privilege of working for a former Commissioner, in my case, Commissioner Paul Atkins, and in his case, Commissioner Elisse Walter. Tyler exemplifies the dedication and talent of the SEC staff, and the Commission is truly lucky to have Tyler as an IM staffer today.
I’d also like to offer my thanks to the program’s planning team, led by the Office of Minority and Women Inclusion but composed of staff from all of the agency’s divisions and many of its offices, for organizing this year’s Student Shadowing Program and inviting me to join you again today as I did for last year’s program.
Let me also applaud all of you, both students and teachers, for making this year’s program another success. I understand that this year’s shadowing program included over a hundred students here in DC, as well as almost 200 students at the Commission’s regional offices. That’s a great turnout, marking another successful year for the program.
I’m delighted today to be able to join my colleagues throughout the agency in congratulating you for your hard work. I usually have to offer a standard disclaimer that the views I’m expressing are my own and do not necessarily reflect the views of the Commission or my fellow Commissioners, but I’m going to go out on a limb today and tell you that they do. We’re all tremendously proud of the Student Shadowing Program and grateful for the work you’ve done here. The Shadowing Program is a great way for us to introduce the agency and its dedicated staff to you and for you to learn about what we do on a daily basis.
As I noted at the beginning, I had the privilege of participating in the summer internship program while I was a law student. As an intern in the Enforcement Division, I was able to see firsthand just how important the SEC’s work is to protecting investors, both big and small. For example, one of my responsibilities that summer was to call a group of investors to let them know that, as a result of the Enforcement staff’s efforts, we were able to prevent their funds from being misappropriated as part of a securities fraud scheme. It was truly a rewarding experience for me, and I hope this shadowing program leaves you with a similar sense of the differences you can make for investors here at the SEC.
Today, the SEC’s mission is carried out by over 4,200 dedicated staff members in 5 divisions and 21 offices in Washington, DC and around the country. I wish I had time to talk about all of those offices, but let me spend a few moments focusing on the divisions.
The Division of Enforcement investigates alleged violations of the federal securities laws and, where appropriate, recommends to the Commission that it bring civil enforcement actions against individuals and companies. I’ll note here – and I apologize if I disappoint anyone in the process – that although we often work closely with law enforcement agencies, the SEC has no criminal authority. I suppose it’s probably safer not to have a bunch of SEC lawyers and accountants rappelling from helicopters waving badges and guns!
The Division of Corporation Finance, or “Corp Fin,” assists the Commission in ensuring that corporations are appropriately disclosing certain important information to the investing public as required by law. In fact, although the SEC is often thought of as an enforcement agency, it was originally established as a disclosure agency. What this means is that the SEC seeks to ensure first and foremost that investors have access to certain basic information about their current and potential investments, including, among other things, the risks associated with those investments, so that they can make their own informed investment decisions.
Let me take a moment to stress that it is not, nor should it be, the SEC’s job to eliminate all risk from the securities markets. If we tried to eliminate all investment risk, our securities markets wouldn’t be as vibrant as they are today, and investors would suffer.
I’ll give you an example. In 1985, the year Steve Jobs left what was then known as Apple Computer, Inc., the company’s stock traded for about $2 per share. That low price reflected the difficulties and uncertainties faced by the company at the time, and investors risked losing part or even all of their investment if the company faltered or failed. In return for accepting that risk, that investor gained the opportunity – assuming he or she held onto the stock – to profit from Apple’s eventual success. Today, Apple stock is now worth about $540 per share, meaning that someone who invested $2,000 in Apple stock in 1985 would, taking into account the stock’s splits, be sitting on a $540,000 investment today.
That’s a very different outcome than if that investor had put their money away in a savings account. Today’s interest rates are at historic lows – around half a percentage point – so for the sake of argument let’s multiply them by 10. That $2,000 investment in a savings account paying 5% interest, compounded on a daily basis since 1985, would be about $4,000 today, or double the initial investment. Not bad – but not too good compared to the Apple result of 270 times the initial investment.
Please don’t get me wrong – traditional savings accounts and other low-risk or risk-free financial instruments and arrangements are crucial to our nation’s financial infrastructure. They simply can’t offer the same possibilities of high returns that our equity and debt markets – with the risks they entail – offer to investors.
The Division of Trading and Markets, or “TM,” assists the Commission in providing day-to-day oversight of the major securities market participants, including, for example, broker-dealers as well as securities exchanges such as the New York Stock Exchange or NASDAQ. My last job at the SEC was as a Deputy Director of TM. I was very proud to have worked with the dedicated and talented TM staff during the recent financial crisis, a particularly difficult time for the agency.
The Division of Investment Management, or “IM,” assists the Commission in overseeing and regulating America’s $54 trillion – yes, that’s ‘trillion’ with a ‘t’ – investment management industry, which includes mutual funds and investment advisers. One of IM’s primary responsibilities is to ensure that disclosures about mutual funds, exchange-traded funds, and other investments are accurate and useful to individual investors.
Last but certainly not least, the Division of Economic and Risk Analysis, or “DERA,” is the SEC’s newest division. DERA, among its many other responsibilities, plays the crucial role of studying the potential costs and benefits of our proposed rules. Our rules, while vital to protecting investors, carry costs, and it’s DERA’s job to help us ensure that we don’t accidentally do more harm than good. It’s absolutely crucial to us, as regulators, to be able to quantify those potential costs and benefits. We need to know, for example, if a potential rule that could provide a million dollar benefit to investors would cost ten million dollars to implement.
In conclusion, I’d like to emphasize that one of the highlights of the Shadowing Program is that we get to connect motivated, talented students like you with dedicated and knowledgeable staff throughout the Commission. I hope you’ve all had the opportunity to interact with the diverse and impressive staff from the various divisions and offices
Once again, I congratulate you on completing this program. I encourage all of you to continue to learn more about the SEC as well as the securities and financial services industries in general. There are a number of resources at your disposal, including the SEC’s website; literature on the markets and the financial crisis; business, finance, or civics classes offered at your high school; and, going forward, maybe an internship at the SEC.
We hope we’ve piqued your interest as you consider the possibilities of your own career paths in the financial services industry or in public service at an agency like the SEC. Thank you, and congratulations once again.