Some Republican House members are proposing a bill to “stabilize” the SEC, the SEC Stabilization Act (H.R. 4019). What do they mean by that? First and foremost would be removal of the current “tyrannical”—their word, not mine—SEC Chair, Gary Gensler, “following his long series of abuses that have been permitted under the current SEC structure,” according to the bill sponsor’s press release. (Hmmm, was that just performative?) The actual bill would establish the office of Executive Director and implement a structure similar to that of the bipartisan Federal Election Commission, increasing the size of the SEC to six, with an even party split, thus “protecting U.S. capital markets from any future destabilizing political agenda”—or ensuring permanent gridlock, depending on your point of view.
Under the bill, the SEC would be composed of six commissioners (instead of the current five) who would serve terms of six years each (instead of the current five). The terms of the commissioners would be staggered, with the terms of two commissioners ending every two years. In making appointments of any two commissioners whose terms end on the same date, the President could not appoint individuals from the same political party. Actions by the SEC, such as rulemaking, enforcement or investigation, would require a majority vote. The press release predicts that the “ensuing stability would also force commissioners to work together prior to approving any significant actions under the SEC’s purview. This would implement a similar structure that is currently in place at the Federal Election Commission.”
Whether that structure is appropriate for an agency that oversees the securities markets, as opposed to federal elections, is a big question. As described in this article in Federal Securities Law Reports, the dominant structural model for independent agencies is a three-two split, “with a partisan balance that matches the political views of whichever political party holds the White House. Some agencies have a single commissioner structure that is overseen by a cabinet-level secretary who is responsible to the president. Still other agencies, such as the CFPB, have a single director structure (which is now directly accountable to the president after a recent Supreme Court decision). The purpose of the 3-2 commission is largely to allow an administration to pursue its regulatory goals, a generalized purpose that courts have tended to uphold when a new administration seeks to repeal the rules adopted by a prior administration’s agency leadership.”
The bill would also establish the office of SEC Executive Director to be appointed by the commissioners. The bill prohibits selection of an Executive Director who has previously served as Chair. Under the bill, notwithstanding the delegation in the Exchange Act of most of these responsibilities to the Chair, the Executive Director would “oversee the operations of the Commission, including the hiring and compensation of Commission employees, the delegation of Commission functions to employees of the Commission, establishing Commission rules that are not subject to section 552 of title 5, United States Code [generally, public information], and all other internal-Commission matters.” In addition, any direct reports to the Chair would now report to the Executive Director. The Executive Director and the commissioners would meet once every month and at the call of three or more commissioners. Although, technically, the bill would not remove the Chair, it would largely eviscerate the authority of the Chair over much of current SEC operations.
The article (cited above) also explains that some federal agencies do have executive directors, who perform “many of the routine administrative tasks” that might otherwise have been the responsibility of the chairs; often, however, those executive directors are appointed (with commission approval) and overseen by the agency chair, who also “retains the ability to delegate tasks to the managing director.” This bill, however, would authorize the commissioners to appoint the Executive Director. Although the press release seems to indicate a purpose closer to Chair defenestration, the article observes that the “purpose of the proposed change would be to free the Chair to focus on regulatory and enforcement matters, but it also would strip the Chair of significant power over the conduct of the agency, especially regarding the hiring and firing of agency employees and the delegation of Commission functions to Commission employees.”
Of course, the bill is still just a “bill” at this point and has not even been passed by the full House, let alone the Senate, where it is likely to fail. However, it’s possible that some of the concepts in the bill will survive in some form another day.
