Securities Industry Association: Goals And Principles That Should Underlie SRO Restructuring

The Securities Industry Association (SIA) today released its goals and principles that should underlie SRO restructuring.

I. Goals for Separating Regulation of Broker-Dealers from Marketplace Regulation.

One SRO rulebook for broker-dealer activities and one source for interpretations, examinations and investigations related to that rulebook.
Fair representation of members in the governance of the SRO that oversees their affairs. Specifically, there should be significant but non-majority member representation on the SRO’s board of directors and, at a minimum, on its regulatory oversight committee.
Broker-dealers should pay fees for regulation of broker-dealer activities, through a transparent fee-setting process, to one SRO rather than multiple SROs. Fees for specific services or products, such as market data fees, should be designed to recover the cost of creating that service or product, but should not subsidize either the general cost of regulation or the cost of other services or products.
The SRO’s costs should be contained in a budget that is subject to independent review, such as approval by the SEC after notice and comment.

II. Principles.

Investor Protection.

Investors should be no less protected under a revised system than they are today.
Core investor protection safeguards should not vary with the markets in which they trade or with the broker-dealer that handles their accounts.

Fair Competition.

One competitor should not regulate another.
Regulation should not stifle innovation.
Regulatory system should not favor some types of firms over others, and should provide voice for cross-section of firms in SRO governance.
Reforms should put markets on a level playing field with global competitors, without undoing protections that have made them safe and attractive trading venues.

Efficient Regulation.

Avoid duplication of examinations, investigations and market sweeps.
Harmonize rulebooks and end conflicting interpretations.
Self-regulation should be in step with movement toward more universal market rules.

Expert Regulation.

Encourage specialized knowledge in regulator.
Provide effective industry input and resources, both through representation in governance and in advisory panels, focus groups, industry assistance with staff training.
Ensure that regulator’s funding is sufficient to attract and maintain talented staff.
Ensure that regulator has expertise and stature to be influential in larger domestic and global regulatory initiatives.

Reasonable and Fair Costs of Regulation.

Ensure adequate funding.
Cost of regulation should be equitably shared among all constituencies that benefit from it, including broker-dealers, issuers, investors and the markets themselves.
Fees should be transparent, cost-justified, and should not exceed the cost of regulation.
Regulatory budget-setting process should be transparent, subject to SEC oversight and input from the regulated community and the public.
Enforcement fines should not be part of the regulatory budget.

Encourage Industry Participation in Self-Regulation.

“Fair representation” of members in SRO governance is statutorily mandated, and should be encouraged.
Adequate representation in setting regulatory standards is essential in order to keep the words “just and equitable principles of trade” meaningful.

Regulatory Accountability.

Self-regulation should be structured so that the responsibilities of each regulator are separate and clear.
There should not be gaps in regulatory coverage.