February 9, 2005
At the outset, let me not pass over in silence the dirth of comments on this issue from any of the parties. Well,as the saying goes: If youre where angels fear to tread, youre not in heaven.
I think it is time to recognize self-regulation for the oxymoron it has become. One inhibition from our coming to grips with the abysmal failure of self reulation is that government regulation hasnt been any better and the GROs seem to be in a perrinial, if half-hearted, search for courage. Sadly, the GROs have shown no inclination to be less self-interested or more pure of heart than their private industry counterparts. One reason for this may be the incestuous relationship that seems to exist between the SROs and the GROs. The revolving door of regulators to law firms, some representing SROs or to issuers or broker-dealers or to SROs has created a daisey chain of temptations and self aggrandizement and reciprocal remuneration delayed, perhaps but pervasive nonetheless.
Moreover, the combined GSO and SRO policies implemented in recent years have worked to the disadvantage of not only the small investor, but the small broker-dealer as well. Things like shelf registrations, T plus, and the too inept to be lamented CRD systemsic have presented smaller firms with disproportinately higher marginal costs, reduced marginal revenue all to the advantage of the pristine and pure larger firms.
Coincidentally,or not, the large broker-dealers and SROs have both the bureaucratic culture and the income to make comfortable homes for the displaced among the GROs who now want to rest upon their resume, if not their accomplishments at the SEC. One does not have to look very hard to find SEC staffers confessing to paying their dues at the Commission to secure a spot at a big frm, broker-dealer or SRO.
For years the SEC has proceeded on the assumption that the big firms and the SROs have much to lose by chicanery and thus the SEC has focused on smaller firms. Now, as we all know, some people, regardless of the size of the firm that employs them, can resist everything but temptation. The SROs and the big firms and issuers have demonstrated that they are not immune to short term profiting by less than honerable means at the cost of their clients,shareholders or the majority of their members.
Moreover, at the very time that the purity of the SROs was coming into question the SEC allowed the SROs to further restrict the power of the smaller firms to gain a seat among, for instance, the NASD Board of Governors and to allow the ASE seats to go to the big firms rather than to the majority of NASDs smaller firms.
I urge the Commission now that election fund raising season has past to find the courage to take on the issuers, dealers and SROs whose policies, programs and practices disadvantage the smaller investor. If the market becomes a venue only for large institutions and their retired GRO-SRO staffers, neither the investors nor the issuers will be well served.
I believe that the CRD system? should be immediately upgraded so that it is at least as good as that of a small town library. If a library can tell you where every book is, who might have it out and when it is due back why cant CRD easily provide the reps at every branch, the reps in every state and so forth.?
I urge the Commission to no longer confuse oversight with overlook and to recognize that the failures of the past can no longer be excuses for the future. I believe that all regulators should be housed in one federal agency with offices in every single state or a radius of reasonable oversight.I believe that the SROs should serve the industry only but explicitly so and liason with the Federal agency and its 50 branches to oversee the industry.
I believe the state securities commissions should be preempted from anything and everything that is currently under their puny power, including, but not limited to, their power to tax entrepreneurship through registration fees.
We are in a situation not unlike the farmer gambling at his small towns saloon. A big city gambler watches as the dealer deals card after card from the bottom of the deck to enhance his hand. After a while a disgusted farmer quits and takes his last coins up to the bar to buy a drink with what is left of his stake. As he stood next to the gambler the gambler said: The dealer cheats you know.
Yeah, the farmer agreed, He cheats, but its the only game in town.
There are many other things which the Commission has addressed with only benign neglect that one could discuss, but for now let us await the response of the interested parties to the proposal on the table. I have little confidence that the status quo that advantages so few at the costs of so many will be changed soon.