The Derivative Project

Is This Another Bogus SEC Economic Analysis?

Is This Another Bogus SEC Economic Analysis?

What a week.  There were two watershed announcements from the SEC that changed the rules for retail investors.  As Yves Smith of Naked Capitalism summed it up:

“It is now no longer possible to pretend that the SEC is an investor protection industry. It might as well throw out the SEC logo and put the Chamber of Commerce’s on its door. At least we’d have some truth in advertising.”
The Derivative Project highlights the second phony “economic cost-benefit analysis that screams
“you have got to be kidding me,” in relationship to the economic cost/benefit analysis of extending the Retail Foreign Exchange Transactions and extending the interim final temporary rule until July 31, 2016.
For background on the issue, see this The Derivative Project Blog Post:
First on the Jobs Act and the First Bogus Economic Analysis of the Week

The Wall Street Journal wrote on July 10, 2013 on the SEC Amendments:
“On Wednesday, the Securities and Exchange Commission lifted a decades-old ban on publicizing any share offerings that aren’t registered with the SEC and are limited to accredited investors.”

Luis Aguilar, SEC Commissioner  Comments at the Hearing to Approve

“Obviously, I am disappointed and saddened by the reckless adoption of the amendments to Rule 506 without appropriate safeguards. I know that many on the staff share my concerns. I want to encourage you to fight on behalf of investors. They will need you now more than ever.”

Barbara Roper on Economic Analysis on Jobs Act

“One of the (many) things that is troubling about this action is that the Commission finalized this rule based on a proposal that did not even pretend to follow the Commission’s guidelines for economic analysis. That should resolve any questions about whether economic analysis is really a tool to improve regulations or just another way to hand the drafting pen to industry lobbyists. I know, you’re asking whether that was still an open question in anyone’s mind. But this action provides conclusive proof.”

Naked Capitalism On Economic Analysis

“This is a textbook example of corruption. The SEC wouldn’t dare skip the economic analysis step if it were to take the out-of-character step of making life difficult for the securities industry; it would need to take these steps to withstand a legal challenge. But the Supreme Court has raised the bar very high for public advocacy groups to obtain standing to oppose these measures. And with weak rules in place, there’s no harm, no foul.”
Retail Foreign Exchange Transactions and Economic Analysis

The SEC extended the rule for another three years to really investigate if there is abuse and fraud in these markets, while completely ignoring the significance of the Peregrine fraud in 2012.  It is not even referenced in their cost-benefit analysis.  Remember, the SEC also performs these analyses on behalf of the public interest…
The SEC wrote in their COMPLAINT
Plaintiff Securities and Exchange Commission (the “Commission”) files this Complaint against Defendants Kevin G. White, KGW Capital Management, LLC, Revelation Forex Fund, L.P.,
“The Commission brings this emergency action to halt an on-going, fraudulent Forex trading scheme being run by Kevin G. White of Plano, Texas.”
While this individual was not a registered broker and the SEC complaint is dealing with a Fund, not a transaction per se,  it shows the prevalence of scams and schemes in the retail FX market.
Time for Congress to take steps to define the parameters for cost/benefit analysis at the SEC.