Assume that the Securities and Exchange Commission (SEC) has a rule that it will
ID: 446261 • Letter: A
Question
Assume that the Securities and Exchange Commission (SEC) has a rule that it will enforce statutory provisions prohibiting insider trading only when the insiders make monetary profits for themselves. Then the SEC makes a new rule, declaring that it will now bring enforcement actions against individuals for insider trading even if the individuals did not personally profit from the transactions. In making the new rule, the SEC does not conduct a rule making procedure but simply announces its decision. A stockbrokerage firm objects and says that the new rule was unlawfully developed without opportunity for public comment. The brokerage firm challenges the rule in an action that ultimately is reviewed by a federal appellate court. Using the information presented in the chapter, answer the following questions
Explanation / Answer
The mission of the Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and enable facilitation of capital formation
Rulemaking comprises many steps: concept release, rule proposal, and rule adoption.
Concept Release: The rulemaking process starts with a rule proposal, however at times an issue is so unique that the Commission looks out for public input on which, if any, regulatory approach is appropriate. A concept release is issued explaining the arena of interest and the Commission's concerns and identifying various approaches to dealing with the issue, followed by a number of questions that seek the views of the public on the issue. The public's feedback is taken into account as the Commission decides which approach, if any, is appropriate.
Rule Proposal: The Commission publishes a formal rule proposal for public comment. Unlike a concept release, a rule proposal advances specific goals and proceures for obtaining them.The Commission gives between 30 and 60 days for comment. Like in a concept release, the public comment is considered important to the formulation of a final rule.
Rule Adoption:Lastly, the Commissioners consider what they have learned from the public reaction of the proposed rule, and seek to agree on the specifics of a final rule. If a final measure is thereafter adopted , it becomes part of the official rules for the securities industry.