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Economic analysis in rule making has become a critical
issue for the SEC. The D.C. Circuit has rejected two Commission rules in recent
years, expressing concern about the level of analysis. The Office of the
Inspector General issued a report earlier this year which considers cost
benefit analysis regarding certain Dodd-Frank rules. The GAO issued a report
addressing the level of analysis for Dodd-Frank rules late last year. Congress
is considering proposals which would require additional economic analysis in
On April 17 SEC Chairman Mary Schapiro told Congress that
the SEC is involving its staff economists earlier in the rule writing process,
expects to add 20 economists to the RSFI in the next few months and is
requesting funding for 20 more economists. Testimony Concerning Economic Analysis
in SEC Rulemaking, before the Subcommittee on TARP, Financial Services and
Bailouts of Public and Private Programs Oversight and Government Reform
After reviewing the statutory predicates for Commission
rule making and the difficulties of conducting the appropriate analysis, the
Chairman informed the Committee that the agency is implementing new guidance
for conducting economic analysis developed by its General Counsel and Chief
Economist based on the GAO and OIG reports as well as other sources. Under the
new approach to economics in rule writing the agency is:
A fundamental change made by the Commission is to utilize
the expertise of RSFI economists in the rule writing process at the earliest
stage and throughout the course of writing proposals. Under the new guidance
the Commission is also attempting to clearly identify the justification for the
proposed rule, define the baseline against which the economic impact of the
rule is measured, discuss reasonable alternatives and analyze the economic
consequences of the proposed rule and the principal regulatory alternatives.
Finally, as recommended by the OIG report, in some recent releases the
Commission is including an integrated economic analysis rather that one which
is segmented into sections. Further improvements in the economic analysis will
be made in the coming months.
For more cutting edge commentary on
developing securities issues, visit SEC Actions, a
blog by Thomas Gorman.
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