Amid the daily political bickering with Democrats, the chess game with China, Russia and Iran, the usual boasting about the economy, and the now seemingly admitted mistake of the baby caging, Trump has apparently finally found time to look at one huge campaign promise he made: regulations.
“In speaking with some of the world’s top business leaders I asked what it is that would make business (jobs) even better in the U.S. “Stop quarterly reporting & go to a six month system,” said one. That would allow greater flexibility & save money. I have asked the SEC to study!”
So said Trump this Friday in a public Tweet that for the first time mentions the Securities and Exchanges Commission (SEC).
The latter is running under three commissioners, when it should be five. Congress (more correctly Democrat Senators) has delayed previous nominees and is seemingly trying to delay new ones as SEC has been and continues to be tilted towards Democrats despite it ostensibly being non-partisan.
Congress more widely is looking at SEC’s work and some of the laws that regulate investment, with America’s civil service implicitly rebutting SEC in a number of reports.
This is the first time, however, that the Whitehouse signals they are looking at the agency, with just what exactly Trump said to Jay Clayton, current SEC chair, remaining unclear. Clayton, on his part, was quick to make a statement, saying on Friday:
“The President has highlighted a key consideration for American companies and, importantly, American investors and their families — encouraging long-term investment in our country…
Recently, the SEC has implemented — and continues to consider — a variety of regulatory changes that encourage long-term capital formation while preserving and, in many instances, enhancing key investor protections.
In addition, the SEC’s Division of Corporation Finance continues to study public company reporting requirements, including the frequency of reporting.
As always, the SEC welcomes input from companies, investors, and other market participants as our staff considers these important matters.”
SEC itself said on the same day they have adopted amendments “to certain disclosure requirements that have become duplicative, overlapping, or outdated in light of other Commission disclosure requirements, U.S. Generally Accepted Accounting Principles (GAAP), or changes in the information environment.”
Which leaves one wonder whether both Trump and SEC are politely effectively saying nothing in public while saying plenty in private, or whether they both are pretending they plan to do something while aiming to do nothing.
The answer to that, only time will tell, but while there is plenty to be said about streamlining disclosure requirements and having a laddered approach in line with their capitalization, the main gripe with SEC is their discriminatory attitude towards investors.
That is, a rich billionaire needs to comply with nothing to invest in a start-up, but for someone earning less than $200,000 a year there are tons of requirements that take months and even years to get to the approval stage by SEC. Or as James Fawcett from Morgan Stanley put it:
“Do we need to revisit the underlying assumptions around protection for consumers and retail investors, et cetera? Should people be accredited or not—those kinds of things…
I think there is also a credible question as to are we treating people in a way that we are going to prohibit them from participating and so we need to think about what the underlying assumption set is about who needs protection under what conditions.”
That was asked during a recent panel at the Council of Foreign Relations. Superintendent Maria T. Vullo who oversees New York’s Department of Financial Services, effectively doges the question to generally say:
“In all of these areas, anything new, you have to look at whether or not the existing law—the principle is probably the same, but whether the things surrounding it are appropriately applicable, whether you need to tweak it, or maybe make major changes to what it is in order to both foster innovation and allow for sort of more global enterprise while mitigating risk.”
Jose Pagliery, reporter for CNN Investigates, gives a more direct answer in stating:
“That law, as it stands, I think is quite blunt, right? I mean, why is it that if a person doesn’t have a certain level of wealth they can’t even access these type of investment fields?
That—it just—it seems terribly unfair… and some of that can change… like why not, right? If somebody wants to invest in something, why not?
But, on the flip side, maybe there should be a much smarter approach to regulating the companies doing these ICOs and making sure there are stark warnings to an investor—a potential investor. But, yeah, it’s probably time to look at that.”
SEC doesn’t really have full jurisdiction there as it is Congress which has to change this century old law which prohibits fairly wealthy people, say individuals or couples earning $50,000 a year or young adults potentially still living with their parents who might be earning $20,000 a year and have plenty of savings, from investing in start-ups and other private companies.
But SEC does have considerable leeway in how they apply the law and how they extend it to new areas. Specifically ICOs or token offerings which they have said need to effectively comply with all the requirements that a billion dollars company has to go through when having an Initial Public Offering.
Startups obviously are not going to do that because it costs a lot and it takes potentially years, so they limit themselves to individuals who earn more than $200,000, the rich, in which case they have to comply with nothing.
The effects of that are numerous, and none is good considering alternatives. The prohibitions in investments leads to monopolies, it leads to lower wages due to lack of funding to start own business, it leads to a lower share of growth for anyone not earning above $200,000, that higher wealth inequality leads to a capture of the political and regulatory class, and so on.
It is a law that must go, but not without replacement. Rules can be good, and they are obviously needed in many instances. An ICO like the year long EOS token sale, for example, should be subject to many requirements.
On the other hand, a start-up that wants to raise $10 million or $20 million shouldn’t have to spend $5 million or $10 million to comply with all these requirements because how do they raise that money in the first place?
They should be subject to far lower requirements, if indeed any save for criminal law backstops, leaving civil matters to investors who can sue in courts. That doesn’t mean no guidance or perhaps even a badge of sorts by maybe even a government funded self-regulatory agency.
Because lawmakers, and regulators, like everyone else, have to innovate too. Century old laws are in many instances clearly inappropriate for the digital age. Perhaps even SEC, as it stands, is inappropriate.
Maybe it should be broken up. When it was created, the markets it oversaw were far, far smaller. Now it is effectively overseeing the entire economy, something which it clearly can’t do as their failure prior to the banking crises showed.
Perhaps SEC should be focusing only on public companies, with another regulator looking at mid-cap private companies, and another at start-ups.
Then, maybe, they would be more responsive to the ever changing needs, while SEC obviously can’t because they have so much on their plate. They green-light new IPOs, they green-light ETFs, they oversee ICOs, they oversee billion dollars private companies, million dollars private companies, startups.
With all this power over the economy, they’re not even elected and they can’t be fired without cause. They can be broken up, however, so that they don’t become a master when they are serving at the pleasure of taxpayers.
But that might be too radical even for Trump who, save for in foreign policy, seems to be mainly preoccupied with tedious nonsense bickering with Democrats of which no one cares, and for some unfathomable reason seems to think anyone cares to lock up babies.
When he was elected on his promise to drain the swamp, which he hasn’t, to revive third world airports, which he hasn’t as the debt keeps ballooning with half of it going to interest payments, and on his promise to stop chocking businesses, which he hasn’t.
That doesn’t mean he won’t. Two years can be a long time in politics, but he does need to give the electorate something prior to this November mid-term elections so that they can keep giving him the benefit of doubt instead of making him a lame duck president by flooding Congress with Democrats which would mean Trump can’t get anything done domestically.
Although, in this area, where it comes to investment prohibitions and so on, it does look like there is general bipartisan agreement.
That’s because it isn’t really a left or right issue. These laws are just so old they have to be updated because startups are at new lows, as are IPOs.
Moreover, SEC shouldn’t be making political decisions where it comes to things like ETFs. They may have their own personal views, but cryptos are a success story for America, Europe and the world.
This institution, therefore, needs a shakeup because it has become too powerful, too unaccountable, too political in standing in front of innovation, and too ineffective in overseeing areas that do need to be closely watched as the Madoff scandal has shown.