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Publication Date

2015

Abstract

The federal securities laws grant broad rulemaking authority to the Securities and Exchange Commission (SEC). In promulgating rules, the SEC must not only ensure that its rules protect investors and the public interest, but also consider the effects of its rules on efficiency, competition, and capital formation (the ECCF mandate). However, the SEC's rulemaking authority has been frustrated. In two decisions striking down SEC rules, the D.C. Circuit has required the SEC to conduct a quantitative cost-benefit analysis under the ECCF mandate. This contrasts with the SEC's historic practice of qualitatively assessing the effects of its rules. While these D.C. Circuit decisions have been criticized for applying an inappropriately high standard of review to SEC rulemaking, this Article identifies a more fundamental problem with these decisions: they interfere with the SEC's power to administer the securities laws. This interference frustrates administrative law principles that lie at the heart of the division of power among the three branches of government. Requiring the SEC to engage in a quantitative analysis in rulemaking is especially troubling in a context where the SEC must pass numerous rules under the Dodd-Frank and JOBS Acts. These analyses will surely fail to capture the unquantifiable effects of SEC rules, such as their effect on firm wealth-creating strategic management processes. For these reasons, this Article urges the SEC to exert its authority under securities laws and issue an explicit interpretation of the ECCF mandate in a way that best captures the full impact of its rules.

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