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U.S. Securities and Exchange Commission

Speech by SEC Commissioner:
Remarks at "The SEC Speaks in 2002"


Cynthia A. Glassman

U.S. Securities and Exchange Commission

Washington, D.C.
February 22, 2002

Thank you, Paul, for your introduction. Since I am a new face to many of you, I'd like to use my 10 minutes to further introduce myself. But first — my disclaimer — The views I express here today are my own and do not necessarily reflect those of the Commission, other Commissioners, or the Commission's staff.

To say that I'm here in interesting times is an understatement.

I've just wrapped up my fourth week on the job. The range and complexity of the issues facing the Commission, the urgency with which we must address them and the spotlight upon us, are not quite what I envisioned when I was first approached about the Commissioner position last summer. But I believe that many aspects of my prior professional experience have prepared me for the task ahead.

When I joined the Federal Reserve Bank of Philadelphia as an economist in the early 1970s, the big policy debates were very different from the ones we face now — and seem very parochial in retrospect. My first project was a study focused on the need for change in Pennsylvania's banking laws. At the time, Pennsylvania banks could branch only into counties contiguous to their home office county. A bank in Philadelphia could not have a branch in Pittsburgh, let alone another state. And the products banks offered were limited to plain vanilla loans, and to deposits subject to a cap on interest rates. Needless to say, competition between banks was limited. Competition between banks and investment companies and securities firms was virtually non-existent.

In addition to the policy projects, I wore a regulatory hat. I was responsible for recommendations regarding the competitive effects of proposed bank mergers. Given the legal restrictions on entry and price competition, some mergers did not pass muster, and I recommended denial, much to the chagrin of the bankers. But some mergers I denied then, I would likely approve now — not because my view on competition has changed, but because the legal and competitive environment has changed.

Which brings me to the point of this story. As an economist, I believe in letting markets work freely whenever possible. I believe that is the most efficient and effective way to allocate resources. But a free market philosophy relies on certain assumptions. In the case of bank mergers, those assumptions included ease of entry and the ability to price competitively.

In the case of capital markets, a free market philosophy requires a free flow of information. That means the information that investors use to make investment decisions must be timely, accurate, clear, and meaningful. It also means that investors must be sufficiently financially literate to understand the information. Accomplishing these objectives was an easier task in the past than it is now. Our world has become increasingly complex. Investors have more choices, but those choices are more complicated.

As an SEC Commissioner, I believe our initiatives to improve the quality of disclosure and to enhance investor education are critical to maintaining the health of our capital markets. Our financial disclosure system is considered the best in the world, but obviously it needs to be better. Recent events have highlighted problems that have been developing for a number of years. In a post Enron environment, with investor confidence wavering, we must take actions that create sustainable improvements in our financial system.

  • We must improve transparency in our reporting;
  • We must see to it that financial statements reflect economic realities;
  • We must make sure incentives are in place to align management and auditor interests with those of public shareholders; and
  • We must give investors the tools to make investment choices that are right for them.

I believe that incentives work — and that we must incent the right behavior to promote efficient and effective capital markets. But the American public and the investment community should also know that I believe that punishment for bad behavior should be swift, sure, and severe. Investors must be confident that we are protecting their interests.

Clearly, we at the SEC are committed to working together with all of the stakeholders in our financial system — Congress, investors, companies, auditors, and other agencies — to get the right solutions, without creating unintended consequences.

As you know, last week the Commission announced a number of new ideas to improve and accelerate corporate disclosures. We are also planning several Roundtable discussions on how to improve financial statement disclosure and oversight of the auditing function. We are also going to hold a series of Investor Summits, to make sure that we provide a forum for investors to give us their thoughts on these important issues.

These are just the first steps in a longer-term effort to improve financial reporting and disclosure. In my view, there should be no sacred cows as we go through the process of determining what changes are needed, how they should be made, and who should make them.

In addition to these overarching issues, I will be focusing on several areas that leverage my specific background and expertise.

It should not be a surprise that I intend to work closely with our economics staff to ensure that our policy decisions are supported by sound economic as well as legal analysis. We economists need to stick together!

In addition, given my background at the Federal Reserve and consulting to the banking industry, I will be directly involved in issues relating to the banks and their regulators.

Further, I believe very strongly that financial literacy of investors is a critical underpinning of our capital markets. I will be actively supporting our investor education efforts.

And last, but certainly not least, Chairman Pitt has asked me to oversee the Commission's planned comprehensive review of SEC regulations. That will not be just an academic exercise. The goal of that review is to make sure that our rules are relevant, effective, and efficient in the markets of the 21st century.

In conclusion, I want to say how honored I am to be an SEC Commissioner. I started my career in public service at the Fed and am excited about my return to public service as a Commissioner of one of the best and most important agencies in the U.S. government. Thank you for the opportunity to speak at SEC Speaks today.



Modified: 02/26/2002