Speech by SEC Commissioner:
Opening Remarks Regarding Proposed Rule 9j-1
Commissioner Elisse B. Walter
U.S. Securities and Exchange Commission
SEC Open Meeting
November 3, 2010
Thank you, Chairman Schapiro. I, too, would like to thank the staff for its hard work on the rule before us today.
In the wake of the stock market crash of 1929 and in the midst of the great depression, Congress created the Commission to restore investor confidence in our capital markets by providing investors and the markets with clear rules of honest dealing. In my view, the most significant rules the Commission has adopted, and continues to adopt today, are the rules against defrauding others. These simple, common-sense rules lay the foundation for new, nascent, and existing markets to grow into more mature and vibrant ones.
Even I am not old enough to remember personally the adoption of Rule 10b-5 in 1942. I will not repeat the short, but vivid and often told, story of its creation by Milton Freeman; I would just like to mention that administrative process was not what it is today and the adoption of Rule 10b-5 took just one day. Times have changed. Like its predecessor, however, I'm certain that proposed Rule 9j-1 will withstand the test of time.
The proposed rule would provide a solid framework upon which the security-based swap markets can flourish. It would specifically prohibit market participants from engaging in fraudulent, manipulative, or deceptive conduct in connection with these markets. The existing antifraud provisions of the securities laws already apply to the swap markets; but, Congress also directed the Commission to adopt antifraud rules that are specific to security-based swaps. As such, the Commission has tailored a new antifraud rule to suit the unique characteristics of the security-based swap market. It applies to all the standard forms of fraudulent behavior as well as others that relate specifically to security-based swaps, such as misconduct associated with "…the exercise of any right or performance of any obligation under a security-based swap."
Antifraud rules, such as proposed Rule 9j-1, establish a level playing field for all investors. They ensure that all market participants, both big and small, abide by the same minimum standards of conduct. Such rules facilitate a healthy environment for market participants to make more informed investment decisions based on truthful information. Proposed Rule 9j-1 will complement our existing antifraud authority and, when coupled with a strong enforcement regime, help root out fraudsters in the security-based swap market.
This is an important step to protect investors, and, as a result, I am happy to support the staff's recommendation.