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Rat Farms and Rule Comments - Statement on Comment Period Lengths

Dec. 10, 2021

As the Securities and Exchange Commission embarks on an active period of rulemaking, we ought to do all we can to elicit broad-ranging public comment. Carefully delineating the nature of the changes we are proposing helps commenters to respond with helpful suggestions for improving the rules. Asking lots of questions, something we routinely do in our rulemaking releases, points the public to particular questions we have. Identifying the problem we are trying to solve, offering potential alternative solutions, setting forth the costs and benefits of the proposed and alternative solutions, and laying out the assumptions and data underlying our economic analysis together enable commenters to offer thoughtful responses. Essential to facilitating substantive input from a wide variety of interested parties is giving people enough time to comment.

The notice and comment process is intended to be a dialogue. The regulatory conversation flows only when the Commission affords the commenting public sufficient time both to review and analyze proposals thoroughly and to formulate fully articulated opinions and suggestions. Analyzing a multi-hundred page rulemaking in the context of intricate markets and an already complicated set of securities and other relevant laws is not an easy task. Such analysis takes time. Thirty days is typically not enough time to get feedback on a rule proposal. In fact, “a comment period . . . should generally be at least 60 days.”[1] For complicated rulemakings or at times when we have many rulemakings outstanding simultaneously, 90-day comment periods are likely more appropriate. Short comment periods are particularly problematic when they coincide with holidays, end-of-year operational obligations, or other periods in which commenters’ staff are likely to be unavailable or occupied with other time-sensitive obligations.

Public commenters help the Commission to look at rules in light of their unique experiences. They bring a broad range of perspectives, technical expertise, and deep, personal experience to their comments. In so doing, they help us to see things we otherwise would not. Sometimes they identify better ways to tackle a problem or point out flaws with rules that we might not have found on our own.

Rules can have unintended, negative consequences. Such unintended consequences sometimes overwhelm the rules’ worthy objectives. Consider an example offered by historian Michael Vann.[2] The French administrators of Hanoi at the beginning of the 1900s faced an overwhelming rat population, which had exploded thanks to the newly installed sewer system. To supplement its on-staff exterminators, the colonial government offered people a bounty for each rat tail turned in. Vann explains the unintended consequence of this program—more rats:

After some perplexity, the authorities realized that less-than-honest but quite resourceful characters were catching rats, but merely cutting off the tails and letting the still-living pests go free (perhaps to breed and produce more valuable tails). . . . [M]ore enterprising but equally deceptive individuals were actually raising rats to collect the bounty. One can only imagine the frustration of the municipal authorities, who realized that their best efforts at dératisation had actually increased the rodent population by indirectly encouraging rat-farming.[3]

A shrewd commenter, given sufficient time, could have foreseen how people would game the rat bounty system and how the rat population would expand as a result of this gamesmanship.

The more eyes allowed to peruse a rule carefully, the more likely we are to identify potential bad consequences ahead of time. I hope the Commission will allow enough time for people to comment so that our policy objectives are not overwhelmed by unintended consequences.

[1] Executive Order 13563, Improving Regulation and Regulatory Review (Jan. 18, 2011), 76 Fed. Reg. 3821 (Jan. 21, 2011). See also Executive Order 12866, Regulatory Planning and Review (Sept. 30, 1993), 58 Fed. Reg. 51735 (Oct. 4, 1993) (“each agency should afford the public a meaningful opportunity to comment on any proposed regulation, which in most cases should include a comment period of not less than 60 days”); Memorandum for the Heads of Executive Departments and Agencies, Modernizing Regulatory Review (Jan. 20, 2021), 86 Fed. Reg. 7223 (Jan. 26, 2021) (“This memorandum reaffirms the basic principles set forth in [Executive Order 12866] and in Executive Order 13563 of January 18, 2011 (Improving Regulation and Regulatory Review), which took important steps towards modernizing the regulatory review process. When carried out properly, that process can help to advance regulatory policies that improve the lives of the American people.”).

[2] Michael G. Vann, Of Rats, Rice, and Race: The Great Hanoi Rat Massacre, an Episode in French Colonial History, 4 FRENCH COLONIAL HISTORY 191 (2003).

[3] Id. at 198 (footnote omitted).

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