Time to Replace The US SEC

Yesterday, the US Securities and Exchange Commission announced that it strengthened "its internal compliance program to guard against inappropriate employee securities trading." In March, the SEC's inspector general sent a report to Chairperson Mary Schapiro indicating possible insider trading using SEC information by two SEC lawyers. A week ago, a US Senator released the report to show the lack of employee oversight at the SEC.

If there were every a reason to abolish the SEC and create a completely new oversight agency with new employees, the new restrictions are the reason.

The measures the agency is taking include:

* First, the staff has drafted a set of new internal rules governing securities transactions for all SEC employees that will require preclearance of all trades. It also will, staff for the first time, prohibit trading in the securities of companies under SEC investigation regardless of whether the employee has personal knowledge of the investigation. The rules have been submitted to the federal government’s Office of Government Ethics, which approves agency ethics rules.

* Second, the SEC is contracting with an outside firm to develop a computer compliance system to track, audit and oversee employee securities transactions and financial disclosure in real time.

* Third, Chairman Schapiro has signed an order consolidating responsibility for oversight of employee securities transactions and financial disclosure reporting within the Ethics Office. And, she has authorized the hiring of a new chief compliance officer.

The SEC has existed for 75 years. Insider trading is fraud and prohibited by US common law. In 1909, the US Supreme Court found under common law that a company director who traded with information about the company that he did not publicly disclosed committed fraud. Schapiro was a temporary SEC chairperson in 1993.

The new self-imposed SEC requirements are standard operating procedures at all the major brokerage firms and have been in operation in the industry for decades.

To not have in place, required codes of conduct and compliance and monitoring procedures at the SEC indicates that the agency's arrogance, self-deception, delusion and narcissism. Not to have an existing compliance officer at the SEC when the agency expects all the financial firms it supervises and monitors to have a compliance officer is the height of conceit. The entire structure of the SEC is dysfunctional and a new oversight agency needs to be built from the ground up.