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U.S. Securities and Exchange Commission

Speech by SEC Commissioner:
Remarks at "The SEC Speaks in 2009"


Commissioner Elisse B. Walter

U.S. Securities and Exchange Commission

Ronald Reagan Building and International Trade Center
Washington, D.C.
February 6, 2009


Thank you very much Linda for that kind introduction. I am delighted to be here today and I appreciate all of the efforts that have gone into preparing for this year's conference. The SEC Speaks has always been a good opportunity for the Commission to report on the events of the past year and provide a glimpse into the year to come.

Even during these difficult times, I am excited to be serving as a commissioner. To some extent, I have spent my entire career preparing for the day that I would return to the agency in this capacity. Although I never anticipated arriving back at the Commission in the middle of a market crisis, I am confident that, with our new Chairman and my fellow commissioners, we are up to the challenges before us.

Today I would like to give you some of my background, explore a few aspects of the Commission's history, and briefly discuss what the future may hold. Before I get too far along though, please let me remind you that my remarks represent my own views, and not necessarily those of the Commission, my fellow Commissioners, or members of the staff.1


I would like to begin by telling you a little bit about my background. My career has given me broad-ranging experience—from drafting SEC filings early on, to appellate and other litigation, legislative drafting and advice, reviewing all Commission action items, rulemaking, opinion writing, and working on major policy initiatives.

After a short period in private practice, I arrived at the Commission in 1977 for what I thought would be a 3–4 year stint, only to spend the next 17 in the Office of General Counsel and the Division of Corporation Finance. I then became the General Counsel of the CFTC, and later spent over a decade at NASD, which has now become FINRA.

Last summer, I was fortunate enough to return to the SEC, the agency where I had cut my teeth as a young lawyer. I was honored to have the opportunity to return to the Commission, especially given my utmost respect for its able staff and central role in protecting investors.

Then last month I had the privilege of serving briefly as Acting Chairman of the agency. Now, I am not sure whether the length of my Acting Chairmanship—7 calendar days—broke any records for the shortest tenure, but it must have been close. I am quite sure that I will receive either confirmation or denial of that fact during the events celebrating our 75th Anniversary, where no shortage of war stories will be swapped. Quite frankly, I was thrilled to turn the reins over to Mary Schapiro. I've served with Mary in a number of capacities and she is precisely the leader that the Commission needs right now.

75th Anniversary

The Commission has played an absolutely critical role in our nation's economy for more than seven decades by protecting investors and ensuring the integrity of our securities markets. And, despite the wave of criticism to which the Commission is now being subjected, we will weather the storm—by engaging in critical self-analysis, making informed decisions, implementing desirable changes, and doing what is best for investors and our markets. I believe that an important part of this will be enhancing our enforcement program, which is so critical to the protection of our nation's investors.

As you know, the foundation of the SEC was laid in the aftermath of the stock market crash of 1929. Before that time, there was no real public support for reining in the booming securities markets in the post war era of the "Roaring 20s." Instead, investors were lured by the promise of easy money. Times were good, and money flowed freely. That quickly changed, however, and declining stock prices and margin calls led to a vicious cycle that shook the very core of our nation's financial markets and economy.

As the Congressional investigation into the securities markets and exchanges led by Ferdinand Pecora revealed that there was serious misconduct in securities financing in the time leading up to the crash, investor confidence in our securities markets hit rock bottom. The investigation and growing public support for reform led to the first effective federal legislation regulating corporate finance: the Securities Act of 1933.

The bill that ultimately became the '33 Act was the third attempt by President Franklin Delano Roosevelt to draft what he called "truth in securities" legislation. Harvard Law professor Felix Frankfurter had been brought to Washington to work on the bill, bringing with him Benjamin Cohen, James Landis, and "Tommy the Cork" Corcoran. During a weekend at the Carlton Hotel in early April 1933, they drafted the bill, which within weeks made its way through Congress and to the pen of President Roosevelt to become law.

Frankfurter's "Happy Hotdogs," as they were known by journalists of the day, would have yet more to do in Washington. After the Congressional investigations continued to expose abuses, momentum grew for a bill to regulate the stock exchanges, and the Hotdogs advised on the so called Rayburn Fletcher bill that was introduced almost exactly 75 years ago today. The bill was later amended to vest a new commission with broad authority over exchanges and required disclosure of information about stocks that were already trading.

On June 1, 1934, President Roosevelt signed the bill into law as the Securities Exchange Act, and the SEC was born. After signing the bill, the President handed his pen to Pecora and asked, "Ferd, now that I have signed this bill and it has become law, what kind of law will it be?" Pecora, taking the pen, answered, "It will be a good or bad bill, Mr. President, depending on the men who administer it."2 If Pecora were with us today, I'm sure that he would have said "men and women."

Since that time, the dedicated men and women of the agency have built upon our strong foundation and worked tirelessly to administer the Exchange Act and other securities laws. These efforts have had tremendous positive effects—preventing countless frauds and immeasurable harm to the securities markets.

Whether campaigning against securities fraud and reviving the securities markets under Joe Kennedy, pursuing fund industry reform and scrutinizing the commission rate structure under Manny Cohen, reconnecting with retail investors and bringing some transparency to the municipal securities markets under Arthur Levitt, responding to the 9/11 terrorist attacks and implementing sweeping Sarbanes Oxley reforms under Harvey Pitt, or ushering in a new regulatory era under Mary Schapiro—to name just a few of our outstanding Chairmen and their initiatives—the Commission has and will continue to take action to protect our nation's investors and ensure the integrity of the securities markets. Although the Commission has come under attack recently, and we will seek to make changes in our processes, rules, and governing legislation, we all know that these principles have always been at the forefront of our minds, day in and day out.

Regulatory Reform

As in the 1930s, the current economic climate is challenging on many fronts and Congress and other regulators are looking for ways to improve the financial system and boost investor confidence. These actions will help to write the next chapter for the Commission, and I believe that they should be informed by our proud history. And it is critical that all involved study the crisis carefully, understand its causes and lessons to be learned, and take action to reduce the chances of a similar crisis in the future.

These efforts are ongoing, but I believe that some lessons are already emerging. For one, recent events have clarified that the Commission needs enhanced authority and resources to continue to fulfill its critical and unique mission as an independent agency. Also, recent events have demonstrated the interconnected nature of financial markets and institutions, and that the regulatory landscape has simply not kept pace with market developments. The events have also reinforced focus on broader threats to financial market stability. Efforts to consider broad regulatory reform, including reform in the financial services area, should draw upon these lessons.

They should also be guided by several important principles, which include rationalizing the regulatory structure to eliminate overlaps, gaps, and weaknesses, enhancing transparency, maintaining a focus on the needs of investors, and ensuring regulatory flexibility and cooperation.

Although today I am not endorsing a particular model for reform, the practical application of these guiding principles may point to reform in certain specific areas. For example, there is significant regulatory overlap in the securities and futures markets, and Congress should address this problem. It should also strengthen the Commission's jurisdiction over OTC financial derivatives, an area in which we have already taken important steps. Last November, we signed a memorandum of understanding with the Federal Reserve Board and CFTC that established a framework for consultation and information sharing on issues related to central counterparties for credit default swaps. And, in December, we approved temporary exemptions to allow a central counterparty for these instruments. Legislative action would provide clarity to the markets and additional stability in this important area.

Reform also is needed to address the regulation of financial intermediaries such as broker dealers, investment advisers, and insurance agents. Currently, these intermediaries are regulated under different statutes, and sometimes by different regulatory bodies, even though they often provide similar products and services to investors. When your Aunt Millie walks into the local financial professional to ask for advice, she has no idea—nor should she—which set of laws governs the conduct of the person on the other side of the table. What she does need to know is that no matter who it is, or what product they are selling, she will receive a comparable level of protection. I don't think that we can give Aunt Millie that assurance today.

As for transparency, although the Commission has made important strides in improving disclosure in the municipal securities market, more can be done to improve the quality and timing of such disclosures. More also can be done to increase the transparency of the ratings used by credit rating agencies. These are just some of the ways that the Commission can ensure that investors get the information they need when they need it.

Finally, although I fully support efforts to address systemic risk in the markets, I also strongly believe that this should neither erode the central role that the Commission plays in protecting investors nor confine its role to a retail, sales practice perspective. To do our job of protecting investors well, it is critical that we continue to have comprehensive market knowledge and the ability to oversee the risk management practices of those firms dealing with the investing public.


In closing, I appreciate the opportunity to share some of the Commission's rich history and to discuss what the future may hold for financial services regulation. I look forward to many more of these opportunities and hope also to meet with you to discuss your thoughts and concerns. Please remember that my door and phone lines are always open. Thank you.



Modified: 02/06/2009