Preparing for the Regulatory Challenges of the 21st Century by SEC Commissioner Luis Aguilar

Preparing for the Regulatory Challenges of the 21st Century

Commissioner Luis A. Aguilar

Georgia Law Review Annual Symposium
Financial Regulation: Reflections and Projections
University of Georgia, Athens, Georgia

March 20, 2015

Thank you, Professor [Carol] Morgan, for that kind introduction. It is a great honor to be here at the Georgia Law Review’s Annual Symposium. Before I begin my remarks, however, let me issue the standard disclaimer that the views I express today are my own, and do not necessarily reflect the views of the U.S. Securities and Exchange Commission (“SEC” or “Commission”), my fellow Commissioners, or members of the Commission’s staff.

In the spirit of today’s Symposium, entitled “Financial Regulation: Reflections and Projections,” I plan to reflect back over the events that have taken place during my years as a Commissioner and then make a few projections as to future trends.

During my tenure as an SEC Commissioner, our country’s economy has experienced extreme highs and lows. In fact, the country experienced the worst financial crisis since the Great Depression, followed by the current period of significant economic growth where the stock market has grown by around 165% from the low point of the financial crisis.[1]

I have had a front-row seat to all of this, as I became an SEC Commissioner just weeks before the financial crisis hit our nation. As a result, I witnessed first-hand just how fragile our capital markets can be, and the need for a robust and effective SEC to protect them. First, let me provide a snapshot of what went on. I was sworn-in as an SEC Commissioner on July 31, 2008. Within a few weeks, on September 15, 2008, Lehman Brothers filed for bankruptcy.[2] To give you a sense of its rapid decline, within 15 days, its share price went from $17.50 per share[3] to virtually worthless. The demise of Lehman Brothers is often seen as the first in a rapid succession of events that led to an unimaginable market and liquidity crisis.[4] These events included:

Substantial economic damage to a number of storied financial institutions;[5]

A crisis that engulfed the money market industry;[6]

The freezing up of the short-term capital markets;[7] and

The discovery of a long list of Ponzi schemes as cash became in short supply, the most famous of which was the Bernie Madoff Ponzi scheme.[8]

Any one of these events would have been a significant market event, but taken together we had a financial system on the verge of collapse. A discussion of all that went wrong could fill several volumes of the Georgia Law Review.

Needless to say, the ensuing turmoil shook the global economy to its core and exposed the weaknesses of many regulatory regimes—both in the United States and abroad. Eventually, it became abundantly clear that years of lax attitudes, deregulation, and complacency about the virtues of strong regulation contributed significantly to the financial crisis.

The events of the financial crisis substantially affected the Commission, as the primary regulator of the U.S. capital markets. It is no exaggeration to say that the SEC’s continued existence was in doubt. In fact, in early 2009, there were reports that the White House and the U.S. Department of Treasury were considering a plan that would reduce the SEC’s authority to protect investors, and transfer this authority to a new federal “super cop.”[9]

I was a new Commissioner at the time, and the Commission, as well as our country, faced an avalanche of unprecedented issues. I marveled at the timing of my arrival at the SEC. Looking back, I thought about my long career as a partner at several nationally recognized law firms, as the General Counsel, Head of Compliance, and Executive Vice President for one of the world’s largest and most successful asset management firms, and as the President of one of its broker-dealers. And now I found myself at the SEC, faced with the possibility that we would be asked to turn off the lights and close the doors for the very last time.

Fortunately, Congress and the White House realized that the SEC played an essential and necessary role. In fact, the Dodd-Frank Act[10] expanded the SEC’s authority and jurisdiction. As a result, during my tenure, a refocused SEC has tackled head-on a wide variety of complex issues. Indeed, the years following the financial crisis have been one of the most active periods in SEC history. Much of this work involved taking an honest assessment of our shortcomings, which resulted in significant internal restructurings, including reorganizing the Enforcement Division,[11] creating a new division to focus on economic analysis and risk assessment,[12]and revamping our inspection and examination program.[13]

Moreover, during this same time period, the Commission has entered into one of its most active periods in promulgating new rules. In fact, the Commission has voted on almost 250 rulemaking releases during my tenure.[14] Most of the Commission’s new rules rightly focused on addressing flaws in our own capital markets. For example, some of these rules sought to remedy the conflicts of interest that led credit rating firms to knowingly give their highest ratings to a slew of investments that were extremely risky, and which turned out to be worthless, or close to it.[15] Other rules address the poor disclosures for the asset-backed securities markets that were at the epicenter of the 2008 market turmoil.[16] Of course, the Commission has also proposed and/or adopted a wide range of other regulatory requirements across the expanse of the capital markets—impacting equity and option exchanges, broker-dealers, investment advisers, and hedge funds—to name just a few.[17]

Many of these rulemakings have been groundbreaking.[18] Still, even with all of this activity, the Commission remains behind on many of its mandates under the Dodd-Frank Act, the more recent JOBS Act,[19] and other important initiatives.[20] The Commission still has much work to do.

In addition to the focus on the domestic market, the Commission is also working internationally to address the dangers arising from the growth and interconnectedness of the global financial markets, and the reality that risks from less-regulated overseas markets can ultimately come to our shores.[21]

The Commission’s efforts continue across a wide range of regulatory initiatives, any of which are worthy of an in-depth discussion. Today, I plan to project forward and focus on certain fundamental challenges facing the Commission that will cut across several important regulatory responsibilities, and demonstrate the need for the Commission to evolve and adapt to changing times. In particular, I will focus on:

First, how the SEC should prioritize its use of data and technology to become a more effective regulator; and

Second, how the global nature of the crisis illustrates the increasingly interconnected nature of the global economy and underscores that the SEC faces a future of needing to work globally to protect American investors.

The Evolving Capital Markets and the Need For High-Quality Information

First, I want to discuss how the Commission is evolving into a more informed regulator through various data gathering and technology driven initiatives.

Today, our capital markets are more sophisticated, larger, faster, and more technologically driven than at any time in history. This rapid change requires that a regulator be able to quickly spot risks, identify emerging trends, and understand how new financial products and evolving market conditions are impacting investors and the capital markets as a whole, both here and abroad.[22]

For example, within the past few years, high-tech, automated trading has come to dominate the world’s capital markets. This reliance on technology has resulted in a market structure increasingly characterized by high-speed trading executed at many different trading venues. To illustrate this point, in January 2005, the New York Stock Exchange’s (“NYSE”) average speed of execution for small, immediately executable orders was 10.1 seconds.[23] More recently, the average speed has accelerated to a half a second or less.[24] This speed can bring benefits as it allows for quicker executions and delivery of market data.[25] However, it can also wipe out billions of dollars in just a few minutes, such as when the Flash Crash in May 2010 caused $1 trillion to evaporate in just 20 minutes, before making a partial recovery;[26] and, when Knight Capital suffered a $460 million trading loss over a 45-minute period in August 2012 that resulted from a computer malfunction.[27]

The new technology has enabled the growth of a very fragmented trading environment and encouraged the proliferation of so-called “dark pools.”[28] As evidence of this development, in 2005, NYSE executed approximately 80% of the consolidated share volume of listed stocks.[29]Today, NYSE’s share of volume is less than 24%.[30] Where we once had just a handful of brick-and-mortar securities exchanges, like NYSE, there are now 18 national securities exchanges and perhaps as many as 40 to 50 dark pools where trades are executed, mostly through automatic, electronic networks.[31] Estimates show that, in 2012, automated trading accounted for about 50-75% of the volume traded on all of the exchanges each day.[32]

It is no secret that the Commission is struggling to keep up with these market and technological developments while trying to assess whether these evolutionary changes benefit or detract from our capital markets. In fact, just last summer, Chair White announced that the SEC would “comprehensively review and address core market structure policy issues, such as the overall fairness of trading in high-speed markets [and] changes in the number and nature of trading venues….”[33] As a further step, the Commission recently established an advisory committee to provide a formal mechanism through which it can receive input on market structure issues.[34]In fact, the first meeting of this committee is scheduled for May 13, 2015.

The Need for Timely, Accurate, and Complete Data and Information

No one can doubt that effective oversight of the capital markets requires that the SEC be well-informed. However, one of the most difficult challenges facing the SEC today is the lack of information, particularly at a time when the capital markets’ reliance on the newest and most advanced technology to generate and process information keeps increasing exponentially.

The Commission’s lack of access to critical data was laid bare by the Flash Crash.[35] It took the staffs of both the SEC and CFTC over four months to get the data and analyze the events of those fateful 20 minutes in May 2010, when the prices of many U.S. equities experienced extraordinarily rapid and extreme swings.[36] The Commission’s need for data is even more acute, as markets are continuing to grow more complex and fragmented.[37] Moreover, the lack of access to critical data goes beyond market structure and cuts across the Commission’s responsibilities including enforcement, corporate disclosures, and the asset management industry.

The financial crisis, and its aftermath, made clear that the SEC needed far more information to effectively supervise a number of important market sectors—such as money market funds, hedge funds, derivatives activities (including credit default swaps), municipal advisors, credit rating agencies, and others.

Efforts to Obtain Critical Data and Information

To that end, even though the SEC is not a self-funded agency, like many of its counterparts, the Commission is devoting significant amounts of its limited resources to enhancing the agency’s data gathering and analytics. These initiatives are important if the Commission is to properly keep track of, among other things, the activities of over 25,000 regulated entities,[38] the approximately 9,400 publicly-traded companies that file reports with the SEC,[39] and the 15,000-16,000 tips, complaints, and referrals we receive per year.[40]

In particular, the Commission has been working to capture data and automate its analytical capabilities to allow our staff to proactively identify areas of risks, emerging trends, and fraudulent activity. These initiatives will allow the staff to spot issues in ways we were not able to do before the crisis.

One of the most significant data collection rules that the Commission has adopted is the requirement for a Consolidated Audit Trail (“CAT”). CAT, when operational, will be the world’s largest data repository of securities transactions.[41] CAT should improve the oversight of the markets by allowing the Commission to identify and address potential risks before they metastasize into larger problems.[42] CAT will also be a game-changer with respect to combatting securities fraud, which is more difficult to identify due to market fragmentation and the rise of electronic trading.

While we’re waiting for CAT to be implemented, the SEC is developing tools to utilize data in new ways.[43] First, in 2013 the SEC staff rolled out a data collection initiative entitled Market Information Data Analytics System, or as we call it, MIDAS.[44] It is designed to collect publicly available market information, such as commercial feeds of market quotes and data from national exchanges. On any given day, MIDAS collects about one billion trading records from each of the national equity exchanges.[45] The SEC staff is utilizing MIDAS to provide market structure information to the public and to help the staff develop better insights into the capital markets.[46] Nonetheless, the system does have some significant constraints. In particular, it only collects publicly available information and it does not provide information regarding the lifecycle of a trade, the various components of a trade, the identities of parties involved in the trade, or any of the off-exchange trade and order flow information. These are gaps that an operational CAT should address in the future.

Beyond better utilizing public data, the SEC is using several data-analytic tools to assist its enforcement investigations. For example, the Enforcement Division is using a sophisticated, data-driven, proprietary analytical program, called Aberrational Performance Inquiry, to identify and investigate hedge funds and financial advisory firms with suspicious returns.[47] In Fiscal Year 2014, the Enforcement Division brought its eighth case, as a result of this initiative.[48]Similarly, the Division’s Automated Bluesheet Analysis Project, which was started in 2011, continues to be an effective and proactive tool to detect suspicious trading patterns and relationships among traders who attempt to profit through illegal insider trading.[49] In addition, working with the Division of Economic and Risk Analysis, or DERA, the Enforcement Division is also using a tool called the Accounting Quality Model (“AQM”), which helps the staff determine whether an issuer’s financial statements stick out from the pack in a way that requires further review.[50]

Furthermore, in response to criticisms about the Commission’s ability to process the tips, complaints and referrals (“TCR”) received, the SEC upgraded its technology to make it easier and more user-friendly for the public to submit tips, as well as to provide the SEC staff with the automated ability to access and analyze real-time data.[51] The Commission now has an automated centralized information system for tracking, analyzing, and reporting on the handling of tips and complaints.[52] This program assures that no tip will be neglected, a problem the SEC had faced in the past.

The Commission recognizes that data gathering is only the start. It also should be able to effectively use and analyze the data. To that end, the Commission is improving the transparency and the overall usefulness of some of the disclosure information it receives, by requiring data tagging.[53] The idea is simple: data tagging allows investors, regulators, and market participants to organize and analyze massive amounts of data and information more efficiently by associating pieces of information with keyword tags.[54] The ultimate result is that data tagging improves the retrieval, searchability, and analysis of relevant market data by the SEC staff and the public alike.

The focus on data tagging began in earnest in 2009, when the Commission adopted its so-called “smart disclosure” rules to require interactive data tagging for the financial statements of public companies;[55] the risk/return information of mutual funds;[56] and certain information provided by credit rating agencies.[57] But it’s not just the SEC that benefits from data tagging. To further enhance transparency of this data, the Commission’s public website now contains organized data sets of quarterly and annual data from XBRL-tagged financial statements filed with the Commission.[58] These data sets should help the public and interested users more easily consume large amounts of data for comparison and analysis. Moreover, the SEC staff has developed analytical tools to use this tagged data to identify and investigate possible enforcement matters.[59]

Finally, another example of the benefits of collecting real-time data information can be found with respect to money market funds. The financial crisis made clear that the information being received by the Commission was too stale to be of regulatory use. When a prominent money market fund “broke the buck,” and other funds came under pressure, we simply did not have the data at hand to determine what other funds could “break the buck.” Accordingly, the Commission promulgated a rule to require money market funds to provide monthly disclosures of their investment portfolios.[60] This new data has proven invaluable, as it allows the Commission to put its finger on the pulse of these funds, and better monitor their activities.

For example, this new data allowed the SEC staff to monitor closely whether and how money market funds were adjusting their holdings during the Eurozone crisis in 2011.[61] In particular, this data allowed the staff to determine that money market funds were not—as had been widely speculated—overexposed to Irish banks and other European securities during the Eurozone crisis.[62]

These are all positive steps forward. The Commission is now using data and technology in ways it had not done before the crisis. The demonstrable results are that the SEC staff is able to review and analyze information more efficiently and effectively.

But, it is not enough and there is much more to be done. As I project into the future, the SEC must push forward with its efforts to embed interactive data in more of its regulatory filing requirements. As one example, as a result of the Dodd-Frank Act, the SEC is promulgating new rules that require additional corporate governance information to be provided in proxy statements, including matters involving executive compensation.[63] These rules should include, where appropriate, data tagging requirements that would enable this information to be reviewed and analyzed more efficiently by the Commission staff and investors alike.[64]

Data Collection and Analysis: A Work In Progress

Ultimately, enhanced data gathering and technological developments can help the Commission fulfill its mission of protecting investors, fostering capital formation, and ensuring the market is fair, orderly, and efficient. However, to accomplish those goals, Congress will need to provide the SEC with sufficient and reliable funding to utilize cutting-edge technologies.[65] In addition, the SEC requires funding to hire staff with specialized skill sets to analyze the data and improve the agency’s ability to assess risk, conduct examinations, and detect and investigate fraud.

Simply stated, to be an effective regulator, the Commission must have a vast repository of vital data from market transactions, public companies and regulated entities, in a format that the staff can easily use, search, and compare. The Commission requires systems that can efficiently manage this volume of information and allow the information to be reviewed and analyzed more effectively by the Commission staff and the public.[66] We’re getting there, but we’re not there yet —not by a long shot.

At the end of the day, whether or not the SEC will be an effective regulator in the years to come will depend on its ability to obtain and efficiently analyze full, accurate, and timely data as to market activity and all the companies we oversee.

The Globalization of Securities Regulation

Let me now turn to another growing challenge—and that is the growing globalization of securities regulation.

Technological advances that have impacted the domestic securities markets have also significantly affected the global securities market and have accelerated the movement of capital across international borders.[67] Over the past 20 years, the global securities market has grown in both size and sophistication[68]—and as the global markets grow, Americans have a greater ability to invest in securities markets around the world. This increase in investment opportunities has been facilitated, in part, by advances in technology that provide investors—through their desktops and smart phones—with access to nearly limitless investment opportunities worldwide.[69]

These developments require that the SEC think more globally and recognize that its registrants will increasingly be global players, that fraud perpetuated at home can be initiated by those who have never set foot in the United States, and that a market meltdown can have global origins and ramifications.

Consequently, as I project forward, the protection of American investors will require that the SEC increase its efforts to communicate, coordinate, and cooperate with its international counterparts, something that is easier said than done. The differences between civil and common law jurisdictions, the variances in cultures and traditions, and the dissimilarities in local laws and how they are enforced pose serious challenges. Oftentimes, the applicable law is a patchwork of separate and localized regulations that, at best, result in a fragmented, uncoordinated, and sometimes conflicting system of regulations, and, at worst, can result in a “race-to-the-bottom.”[70]

Fostering a Global Environment for Combating Fraud

An important aspect of international cooperation, of course, is addressing cross-border fraud. In fiscal year 2013, for example, almost 20% of the SEC’s enforcement cases involved foreign persons and entities.[71] Moreover, the Commission expects future cases to continue to have international elements.[72] To effectively investigate and prosecute these cases, the Commission will need cooperation from our international partners. To that end, the Commission has entered into over 130 information-sharing arrangements with foreign regulators and law enforcement agencies.[73] In addition, the SEC conducts a wide variety of technical assistance programs to train our international regulatory and law enforcement partners on enforcement and examination topics.[74] In Fiscal Year 2014 alone, the SEC trained more than 2,300 regulatory and enforcement officials from around the world.[75]

Recent statistics underscore the growing need for mutual cooperation in cross-border enforcement. A quick look at the SEC’s recent international enforcement cases include numerous cases in the areas of insider trading, market manipulation, foreign bribery, and other securities fraud cases.[76] This growing trend requires a good deal of international cooperation in order to prosecute these cases successfully. In Fiscal Year 2014, for example, the SEC made about 735 requests for international assistance, and, in turn, received approximately 460 requests for assistance from foreign regulators.[77] In addition, the SEC often provides access to its files to foreign regulators and uses its compulsory powers to assist foreign investigations.[78]

Regrettably, these international efforts are not what they should be. Although some international partners have been helpful, there are too many times that when the SEC calls for help, we find only silence, or worse, there are regulatory obstacles put in the SEC’s path.[79] These obstacles and challenges included a foreign regulatory authority’s lack of broad powers to investigate, litigate, or sanction violations; lack of regulatory independence from political and industry influences; and the lack of resources dedicated to international cooperation.[80] Additionally, several foreign jurisdictions have privacy laws, blocking statutes, and other laws restricting or limiting the disclosure of certain information required in enforcement investigations and regulatory examinations.

Moreover, even when the SEC succeeds in obtaining remedies in federal district courts or administrative proceedings for a cross-border fraud, enforcing those judgments and orders still poses challenges. For instance, one important tool for the SEC to punish wrongdoers is its ability to seek monetary penalties.[81] The power to impose penalties enhances the effectiveness of the Commission’s enforcement program by more effectively deterring individual and corporate violators.[82] However, the weight of legal authority in foreign jurisdictions tends to favor the denial of court judgments and administrative orders that impose fines or penalties.[83]

The impact of cross-border fraud on American investors is further exacerbated by the Supreme Court decision in Morrison v. National Australian Bank, Ltd. that limits the anti-fraud provision of the Exchange Act, Section 10(b),[84] to claims that relate to frauds on an American stock exchange or that involve security transactions in the United States.[85] The end result is that, as the internet and the growth in foreign capital markets facilitate the ability of American investors to directly deploy their money around the globe, their ability to seek redress in the United States is being limited, while their ability to be harmed is not.

Accordingly, the Commission must consider, first, what it can do to prevent, detect, and mitigate the domestic impact of fraud originating from a foreign jurisdiction; and, second, what it can do to foster global efforts to combat fraud and enhance market integrity. But, as I said before, this is easier said than done.

The challenge regulators face in pro-actively preventing fraudulent activity is demonstrated by the Public Company Accounting Oversight Board’s (“PCAOB”) difficulty in inspecting PCAOB-registered firms that reside abroad. As you may know, in order to audit financial statements of companies publicly-traded in the United States, accounting firms are required to register with the PCAOB and subject themselves to regular inspections.[86] This is not limited to accounting firms based in the United States, and, in fact, more than 900 of the approximately 2,300 firms registered with the PCAOB are located outside the United States.[87] Thus, for the PCAOB to be effective, it must be able to inspect all registered firms no matter where they reside—truly a global effort.

Unfortunately, the PCAOB has faced significant regulatory obstacles to its inspections in a number of international jurisdictions. In various European Union (“EU”) member states, there was a long delay before the PCAOB was even allowed to inspect registered accounting firms, oftentimes as a result of state sovereignty claims, privacy or personal data concerns, or other local law considerations in these countries.[88] Fortunately, within the last few years, the PCAOB has made progress in overcoming some of these regulatory obstacles to global inspections.[89]

Notwithstanding this progress, however, the difficulties continue today, as the PCAOB still is unable to conduct inspections of approximately 175 registered accounting firms in 11 EU member countries, as well as in China, Hong Kong, and Venezuela.[90] These obstacles persist, despite the important regulatory objective of the PCAOB’s inspections in providing investors with reliable and accurate financial statements. Ultimately, these regulatory obstacles pose a threat to all investors, whether in the U.S. or abroad, who cannot be assured that companies with foreign operations in these countries will be subject to audits that meet the requisite independence and high-quality professional standards.

The PCAOB’s experience shows how difficult it is to develop cross-border oversight but, on the other hand, the progress that has been made shows it’s possible.

As we look to the future and project forward, it is clear that, as companies increasingly have foreign operations, the SEC will need to address how best to extend its enforcement reach and supervisory oversight over global operations and transactions. The success or failure of those efforts will determine if the SEC will be an effective regulator in the future.


Clearly, the past few years have been challenging. By many accounts, a large number of investors lost significant amounts of money and simply left the capital markets. Fortunately, since then, there are signs of an economic recovery and that some investors are returning to the market.[91]

Nonetheless, we must learn from the past to project into the future. It is important to keep in mind that change is a constant in our capital markets, and the exact nature and impact of that change will be difficult, if not impossible, to predict. For instance, the dangers and risks of cyber-attacks and the impact of high-frequency trading are developments no one expected just a few years ago.[92]

As we project forward, it is impossible to predict with certainty the challenges ahead. I do believe, however, that the country requires a well-informed and well-funded SEC to protect American investors—from both domestic and international activities. While the world keeps changing, and while the SEC will need to change with it, the one constant I hope will not change is the commitment of the SEC staff to protecting investors and the markets. As we project forward, a strong SEC is the only way to be prepared for the future.

Thank you for having me here today.

[1] During the recent financial crisis, the S&P 500 was at 797.87 on January 1, 2009, and rose to 2110.74 by January 1, 2015. See Yahoo! Finance, S&P 500 data from January 1, 2005 (1,180.59) to January 1, 2015 (2,110.74), available at

[2] FDIC Quarterly, Feature Article: The Orderly Liquidation of Lehman Brothers Holdings Inc. under the Dodd-Frank Act, Vol. 5, No. 2, pp. 1, 12 (Early Release for the Upcoming 2011),available at

3 See id.

[4] Senior Supervisors Group, Risk Management Lessons from the Global Banking Crisis of 2008, p. 6 & n. 2 (Oct. 21, 2009), available at

[5] See, e.g., Nick Mathiason, Three weeks that changed the world, The Guardian (Dec. 27, 2008), available at (“Not since 1929 has the financial community witnessed 12 months like it. Lehman Brothers went bankrupt. Merrill Lynch, AIG, Freddie Mac, Fannie Mae, HBOS, Royal Bank of Scotland, Bradford & Bingley, Fortis, Hypo and Alliance & Leicester all came within a whisker of doing so and had to be rescued.”).

[6] Senior Supervisors Group, Risk Management Lessons from the Global Banking Crisis of 2008, p. 7 (Oct. 21, 2009), available at

[7] Id.

[8] SEC Website, The Securities and Exchange Commission Post-Madoff Reformsavailable at

[9] Chair Mary Jo White, The Importance of Independence (Oct. 3, 2013), available at; Jill E. Fisch, Top Cop or Regulatory Flop? The SEC at 75, 95 Va. L. Rev. 785, 786-789 (June 2009), available at; Marcy Gordon,Obama’s financial watchdog plan faces big hurdles, Real Clear Markets (May 20, 2009), available at (last visited Mar. 14, 2015).

[10] Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), Pub. L. 111-203, § 410 (2010).

[11] SEC Press Release No. 2010-5, SEC Names New Specialized Unit Chiefs and Head of New Office of Market Intelligence (Jan. 13, 2010), available at In the wake of the financial crisis, the Commission also made a number of internal changes. For example, we substantially restructured the Division of Enforcement and created specialized teams of lawyers and market experts to focus in the areas of Asset Management, Market Abuse, Complex Financial Instruments, Foreign Corrupt Practices, and Municipal Securities and Public Pensions. See id. In addition, the Office of Market Intelligence was created to better manage and assess tips, complaints, and referrals. See id.

[12] Moreover, we created the Division of Economic and Risk Analysis, or “DERA,” to provide economic and statistical analysis to support the SEC’s rulemakings, and to assist with our examination and enforcement programs. See SEC Press Release No. 2009-199, SEC Announces New Division of Risk, Strategy, and Financial Innovation (Sept. 16, 2009), available at; SEC Press Release No. 2013-104, SEC Renames Division Focusing On Economic and Risk Analysis (June 6, 2013), available at

[13] SEC Website, The Securities and Exchange Commission Post-Madoff Reformsavailable at

[14] These numbers are based on information received from the Commission’s Office of the Secretary through February 10, 2015, and included both proposing and adopting releases.

[15] See Nationally Recognized Statistical Rating Organizations, SEC Rel. No. 34-72936 (Aug. 27, 2014), available at; Commissioner Luis A. Aguilar, Restoring Integrity to the Credit Rating Process (Aug. 27, 2014), available at

[16] See Credit Risk Retention, SEC Release No. 34-73407 (Oct. 22, 2014), available at Securities Disclosure and Registration, SEC Release No. 33-9638 (Sept. 4, 2014), available at; Commissioner Luis A. Aguilar, Skin in the Game: Aligning the Interests of Sponsors and Investors (Oct. 22, 2014), available at; and Commissioner Luis A. Aguilar, Correcting Some of the Flaws in the ABS Market (Aug. 27, 2014), available at With respect to the adopted rules covering asset-level disclosures of asset-backed securities, the Commission’s 2014 adopted rules only covered certain asset classes, but did not cover all asset classes, such as equipment loans and leases, student loans, and inventory financings. See Asset-Backed Securities Disclosure and Registration, SEC Release No. 33-9638 (Sept. 4, 2014).

[17] For example, during that time, the Commission adopted or substantially amended a number of significant regulatory and disclosure rules—including, to name just a few examples, final rules regarding the application of Title VII definitions of security-based swap dealer and major security-based swap participants in the cross-border context (Application of “Security-Based Swap Dealer” and “Major Security-Based Swap Participant” Definitions to Cross-Border Security-Based Swap Activities, SEC Release No. 34-72472 (June 25, 2014), available at; final rules implementing a statutory mandate that prohibits any banking entity from engaging in proprietary trading or from acquiring or retaining an ownership interest in, sponsoring, or having certain relationships with a hedge fund or private equity fund, subject to certain exemptions (Prohibitions and Restrictions on Proprietary Trading and Certain Interests In, and Relationships With, Hedge Funds and Private Equity Funds, SEC Release No. BHCA-1 (Dec. 10, 2013), available at; rules enhancing the custody practices of investment advisers (Custody of Funds or Securities of Clients by Investment Advisers, SEC Release No. IA-2968 (Dec. 30, 2009), available at; and significant amendments to the rules governing nationally recognized statistical rating organizations (Amendments to Rules for Nationally Recognized Statistical Rating Organizations, SEC Release No. 34-59342 (Feb. 2, 2009), available at; and Amendments to Rules for Nationally Recognized Statistical Rating Organizations, SEC Release No. 34-61050 (Nov. 23, 2009),available at The SEC has also passed amendments to the rules governing money market mutual funds (Money Market Fund Reform: Amendments to Form PF, SEC Release No. 33-9616 (July 23, 2014), available at; rule amendments to strengthen the custody practices of broker-dealers (Broker-Dealer Reports, SEC Release No. 34-70073 (July 30, 2013),available at; rules to prohibit pay-to-play activity in the investment advisory industry (Political Contributions by Certain Investment Advisers, SEC Release No. IA-3043 (July 1, 2010), available at; improvements to the short-selling rules (Amendments to Regulation SHO, SEC Release No. 34-60388 (July 27, 2009), available at; and Amendments to Regulation SHO, SEC Release No. 34-61595 (Feb. 26, 2010), available at; and rules to enhance municipal securities disclosure (Amendment to Municipal Securities Disclosure, SEC Release No. 34-62184A (May 27, 2010), available at

[18] See id.

[19] See Jumpstart Our Business Startups Act, Pub. L. No. 112-106, 126 Stat. 306 (Apr. 5, 2012).

[20] For example, the SEC needs to improve disclosures related to target-date funds and municipal securities. See Commissioner Luis A. Aguilar, Advocating for Investors Saving for Retirement (Feb. 5, 2015), available at The Commission also needs to address a number of issues with respect to the structure of our equity markets, extend the protections of Regulation SCI to broker-dealers and other entities, pass final rules to enhance the safety of systemically important clearing agencies, improve secondary market liquidity for small businesses, and update the rules governing transfer agents. See Chair Mary Jo White, Enhancing Our Equity Market Structure (June 5, 2014), available at; Commissioner Luis A. Aguilar, Statement at Open Meeting on Regulation SCI (Nov. 19, 2014), available at; Commissioner Luis A. Aguilar, Enhancing the Stability and Safety of Clearing Agencies (Mar. 12, 2014), available at; Commissioner Luis A. Aguilar, The Need for Greater Secondary Market Liquidity for Small Businesses (Mar. 4, 2015),available at; Commissioner Luis A. Aguilar, The Importance to the Capital Markets of Updating the Rules Regarding Transfer Agents (Dec. 17, 2014), available at

[21] For example, in 2010, Congress directed the SEC and the U.S. Commodity Futures Trading Commission (“CFTC”) to create a regulatory framework to oversee the derivatives market, which is significantly international in scope. See Davis Polk & Wardwell LLP, Dodd-Frank Progress Report, p. 6 (Dec. 1, 2014), available at (According to this report, as of December 1, 2014, the CFTC has finalized 36 out of 43 required Title VII rulemakings, or 84%, while the SEC has only finalized ten out of 29 required Title VII rulemakings, or 35%.); SEC Press Release No. 2014-123, SEC Adopts Cross-Border Security-Based Swap Rules (June 25, 2014), available at (According to data analyzed by the staff of the SEC, a majority of transactions in single-name credit default swaps on U.S. reference entities involved one or more counterparties located overseas, with approximately 48% entered into between one U.S-domiciled counterparty and one foreign-domiciled counterparty.). To do this, the SEC has been consulting and coordinating with foreign regulatory authorities on the establishment of a robust and consistent international approach to derivatives regulation. See Sec. 752 of the Dodd-Frank Act (International Harmonization): “In order to promote effective and consistent global regulation of swaps and security-based swaps, the Commodity Futures Trading Commission, the Securities and Exchange Commission, and the prudential regulators (as that term is defined in section 1a(39) of the Commodity Exchange Act), as appropriate, shall consult and coordinate with foreign regulatory authorities on the establishment of consistent international standards with respect to the regulation (including fees) of swaps, security-based swaps, swap entities, and security-based swap entities and may agree to such information-sharing arrangements as may be deemed to be necessary or appropriate in the public interest or for the protection of investors, swap counterparties, and security-based swap counterparties.”

See also Cross-Border Security-Based Swap Activities; Re-Proposal of Regulation SBSR and Certain Rules and Forms Relating to the Registration of Security-Based Swap Dealers and Major Security-Based Swap Participants, SEC Release No. 34-69490, (May 1, 2013), available at; Comment letter from Better Markets to the Securities and Exchange Commission, Cross-Border Regulation, at pp. 2-3 (Apr. 19, 2013) (“Weak cross-border regulatory standards not only raise the specter of global systemic risk and failure, they pose a special threat to U.S. interests…Distinctions like ‘branch’ versus ‘guaranteed subsidiary’ create the illusion of varying degrees of immunity from contagion where in reality none exist. Moreover, it elevates form over substance and invites regulatory arbitrage.”); Comment letter from American for Financial Reform to the Commodity Futures Trading Commission (June 14, 2012), available at (“Failure to apply Dodd-Frank protections to the foreign subsidiaries of U.S. banks would permit Wall Street to easily evade U.S. financial regulation by moving their swaps business overseas.”); Commissioner Luis A. Aguilar, Working to Increase Transparency and Reduce Systemic Risks Caused by the Global Derivatives Market (May 1, 2013), available at

[22] Jill E. Fisch, Top Cop or Regulatory Flop? The SEC at 75, 95 Va. L. Rev. 785, 820 (June 2009), available at

[23] See, e.g.Concept Release on Equity Market Structure, SEC Release No. 34-61358, p. 7 (Jan. 14, 2010), available at

[24] See, Michael A. Goldstein, et al.Computerized and High-Frequency Trading, The Financial Review 49, pp. 187 and n. 22, 188 and n. 23 (2014), available at

[25] See, e.g.Concept Release on Equity Market Structure, SEC Release No. 34-61358, p. 58 (Jan. 14, 2010), available at

[26] The Flash Crash of May 6, 2010, during which, in just a matter of minutes, certain equities experienced severe price movements—both up and down—with more than 20,000 trades in over 300 securities executed at prices more than 60% away from their market values. In just a few minutes, nearly $1 trillion in market value evaporated, before making a partial recovery. SeeFindings Regarding the Market Events of May 6, 2010, Report of the Staffs of the CFTC and SEC to Joint Advisory Committee on Emerging Regulatory Issues (Sept. 30, 2010), available at

[27] In just 45 minutes, Knight Capital’s computers rapidly bought and sold millions of shares. Those trades pushed the value of many stocks up, and the company’s losses appear to have occurred when it had to sell the overvalued shares back into the market at a lower price. As a result, Knight Capital lost approximately $10 million per minute, almost had to go into bankruptcy, and subsequently agreed to be purchased. See In the Matter of Knight Capital Americas LLC, AP File No. 3-15570, Securities Exchange Act Release No. 34-70694 (October 16, 2013), available at; PR Newswire,Knight Capital Group Provides Update Regarding August 1st Disruption To Routing In NYSE-listed Securities (Aug. 2, 2012), available at Some of the better-known examples of such incidents include:

The systems issues associated with the initial public offerings of BATS Global Markets, Inc., and Facebook, Inc., in March and May 2012, respectively. The losses sustained as a result of the Facebook IPO may be as much as hundreds of millions of dollars. See, Sarah N. Lynch, Nasdaq says FINRA caps Facebook IPO claims at $41.6 million, Reuters (Oct. 25, 2013),available at (estimating major market makers lost up to $500 million in the IPO).

On August 22, 2013, the trading of more than 2,000 NASDAQ-listed stocks, with a total estimated market capitalization of $5.7 trillion, was halted for three hours because of a technology failure related to NASDAQ’s market data feed. See, NASDAQ, Update — NASDAQOMX Issues Statement on the Securities Information Processor (Aug. 22, 2013), available at; Tom Bemis, $5.7 trillion locked up by Nasdaq trading halt, MarketWatch (Aug. 22, 2013), available at Following this market disruption, SEC Chair Mary Jo White held a meeting with leaders of the equities and options exchanges, FINRA, the Depository Trust Clearing Corporation, and the Options Clearing Corporation, during which she requested action plans on five critical areas in an effort to strengthen critical market infrastructure. The exchanges submitted action plans relating to the following five work streams: (1) enhance the resilience, performance, disaster recovery capability and governance of securities information processors, or SIPs; (2) assess the robustness and resilience of other critical infrastructure systems; (3) evaluate current rules, procedures, and expectations that stem from a system event or outage at one of the SIPs; (4) address rules regarding trade breaks in both the equities and options markets; and (5) coordinate common “kill switch” functionality to prevent risk and disruption to the equity markets.

An alarming number of technology-related market disruptions occurred in the latter part of 2013. On August 20, 2013, Goldman Sachs executed a large number of erroneous options trades when one of its automated trading systems malfunctioned. See, Arash Masoudi,Goldman faces losses on erroneous trades, Financial Times, (Aug. 21, 2013), available at; on September 16, 2013, options trading was halted for more than a half-hour due to a failure of the data feed that supplied options prices to the market. See, Jacob Bunge, Stock-Options Trading Halted After Data Feed Problem, Wall Street Journal (Sept. 16, 2013), available at; on October 29, 2013, a data feed interruption prevented prices for NASDAQ’s benchmark U.S. stock indexes from being disseminated for almost an hour. See, Sam Mamudi and Nikolaj Gammeltoft, Nasdaq Says Human Error Caused Hourlong Halt in Data Feed, Bloomberg (Oct. 29, 2013), available at; on November 1, 2013, NASDAQ halted trading on one of its three options markets for most of the day when its systems encountered problems processing an increase of orders and could not disseminate quotes for a subset of securities. See, Dina ElBoghdady, Another Nasdaq malfunction shuts down options market, Washington Post (Nov. 1, 2013), available at; on November 7, 2013, a network failure at OTC Markets Group Inc. prevented trading in thousands of unlisted shares for more than five hours. SeeJacob Bunge, et al.Glitch at OTC Markets Halts Trading of Unlisted Shares, Wall Street Journal (Nov. 7, 2013), available at

[28] See, e.g., Leslie Boni, et al.Dark Pool Exclusivity Matters, (Dec. 19, 2013), available at (among the consequences of Regulation NMS is the proliferation of dark pool alternative trading systems); Roberta Karmel,IOSCO’s Response to the Financial Crisis, 37 Iowa J. Corp. L. 849 (Summer 2012) (“While deregulation and demutualization opened the door for dark pools, one of the chief reasons for their rapid proliferation in the last decade is the SEC’s promulgation of Regulation NMS”); Aubrey Gallo, Developments in Banking and Financial Law 2009-2010: The Shadow Financial System: XI. Dark Pool Liquidity, 29 Rev. Banking & Fin. L. 88 (Fall 2009) (Regulation NMS mandates that public traders publish the “national best bid or offer” for each security, but doesnot mandate dark pool traders to publish quotes. As a result, the number of ATSs like dark pools, fearful of adverse selection because of Regulation NMS’s disclosure requirements, increased after Regulation NMS passed in 2005 … Regulation NMS, by requiring disclosure of the lowest-priced seller on exchanges, forced large-block public traders underground to avoid disclosure, increasing transactions in dark pool liquidity.”); Kirsten Zaza, A Fiduciary Standard as a Tool for Dark Pool Subscribers, 18 Stan. J.L. Bus. & Fin. 319 (Spring 2013) (dark pools have flourished in the wake of Regulation NMS as institutional investors fled exchanges for dark pools that allow greater secrecy and liquidity); Marshall Blume, Competition and Fragmentation in the Equity Markets: The Effects of Regulation NMS (University of Pennsylvania Finance Department Working Paper Series) (Jan. 2007).

[29] See, e.g.Concept Release on Equity Market Structure (Jan. 14, 2010), SEC Release No. 34-61358, available at

[30] See, Market Volume Summary, available at visited Mar. 14, 2015).

[31] See, e.g., SEC Website, Exchangesavailable at (last visited Mar. 14, 2015) (showing a list of exchanges registered with the SEC under Section 6(a) of the Securities Exchange Act of 1934 (“Exchange Act”) as national securities exchanges); Sam Mamudi, Dark Pools: Private Stock Trading vs. Public Exchanges, Bloomberg QuickTake, (Jan. 21, 2015),available at (last visited Mar. 14, 2015) (“The U.S. stock market has fragmented into 11 public exchanges and roughly 45 alternative trading systems, most of them dark pools.”); Matthew Phillips, European Investors are Diving Into Dark Pools, Bloomberg (Nov. 14, 2013) (noting that there are roughly 40 dark pools in the U.S.); John McCrank, U.S. stock exchanges call for new rules on “dark pools,” Reuters (Apr. 16, 2013), available at (noting that there are around 50 dark pools and 13 public exchanges in the U.S.).

[32] See, e.g., Testimony of David Lauer, Better Markets, Inc., before the U.S. Senate Committee on Banking, Housing, and Urban Affairs, Subcommittee on Securities, Insurance and Investment (Sept. 20, 2012), available at (“[High-frequency trading] has been so successful that it has taken over the stock market, now accounting for between 50%-70% of equity market volume on any given day”); Sal Arnuk and Joseph Saluzzi,Broken Markets: How High Frequency Trading and Predatory Practices on Wall Street Are Destroying Investor Confidence and Your Portfolio, p. 2 (2012) (“high-frequency traders account for 50-75% of the volume traded on the exchanges each day and a substantial portion of the stock exchanges’ profits”).

[33] Chair Mary Jo White, Intermediation in the Modern Securities Markets: Putting Technology and Competition to Work for Investors (June 20, 2014), available at

[34] The Commission established an Equity Market Structure Advisory Committee, or MSAC, to focus on the structure and operations of the U.S. equities markets, and provide a formal mechanism though which the Commission can receive public input on market structure issues. SEC Press Release, SEC Announces Members of New Equity Market Structure Advisory Committee: Committee Comprised of Experts with Diverse Backgrounds and Viewpoints (Jan. 13, 2015), available at (last visited Mar. 14, 2015).

[35] Findings Regarding the Market Events of May 6, 2010, Report of the Staffs of the CFTC and SEC to Joint Advisory Committee on Emerging Regulatory Issues (Sept. 30, 2010), available at (“Of final note, the events of May 6 clearly demonstrate the importance of data in today’s world of fully-automated trading strategies and systems.”)

[36] See id.

[37] See, e.g., Leslie Boni, et al.Dark Pool Exclusivity Matters (Dec. 19, 2013), available at (discussing the proliferation of dark pool alternative trading systems); Roberta Karmel, IOSCO’s Response to the Financial Crisis, 37 Iowa J. Corp. L. 849 (Summer 2012) (discussing how deregulation and demutualization opened the door for dark pools); Aubrey Gallo, Developments in Banking and Financial Law 2009-2010: The Shadow Financial System: XI. Dark Pool Liquidity, 29 Rev. Banking & Fin. L. 88 (Fall 2009) (discussing the increasing number of alternative trading systems like dark pools; Kirsten Zaza, A Fiduciary Standard as a Tool for Dark Pool Subscribers, 18 Stan. J.L. Bus. & Fin. 319 (Spring 2013) (dark pools have flourished as institutional investors fled exchanges for dark pools that allow greater secrecy and liquidity); Marshall Blume,Competition and Fragmentation in the Equity Markets: The Effects of Regulation NMS, The Wharton School, University of Pennsylvania (Jan. 22, 2007), available at

[38] See U.S. Securities and Exchange Commission, FY 2015 Budget Request By Program, p. 55-56, available at (“Given current trends in the markets, OCIE anticipates that at the beginning of FY 2015 it will oversee more than 25,000 market participants, including nearly 11,500 investment advisers with more than $55 trillion in assets under management, more than 800 investment company complexes managing over 10,000 mutual funds and Exchange Traded Funds (ETFs), approximately 4,400 broker-dealers with more than 160,000 branch offices, 18 national securities exchanges, and approximately 450 transfer agents.”).

[39] This data is maintained by the Division of Economic and Risk Analysis.

[40] In Fiscal Year 2013, the SEC received and processed almost 16,000 tips, complaints, and referrals. U.S. Securities and Exchange Commission, FY 2015 Budget Request By Program, p. 52, available at

[41] SEC Rule 613: Consolidated Audit Trail (CAT) Website, Summary of Consolidated Audit Trail Initiative, p. 2 (Aug. 6, 2014), available at It will also handle 58 billion records of orders, executions, and quote life-cycles for equities and options on a daily basis, and estimated to grow to an estimated 21 petabyte of data footprint within five years of operation. Id. The CAT, if implemented, will allow the Commission to track efficiently and accurately all trading activities throughout the U.S. securities markets. SEC Website, Rule 613 (Consolidated Audit Trail)available at But the CAT remains a work in progress. Since the CAT final rule was adopted on July 18, 2012, the Commission has granted two extensions. See Order Granting a Temporary Exemption Pursuant to Section 36(a)(1) of the Securities Exchange Act of 1934 from the Filing Deadline Specified in Rule 613(a)(1) of the Exchange Act, SEC Release No. 34-69060 (March 6, 2013), available at Granting a Temporary Exemption Pursuant to Section 36(a)(1) of the Securities Exchange Act of 1934 from the Filing Deadline Specified in Rule 613(a)(1) of the Exchange Act, SEC Release No. 34-71018 (Dec. 6, 2013), available at generally, SEC Website, Rule 613 (Consolidated Audit Trail)available at (last visited Mar. 14, 2015). The Consolidated Audit Trail is a necessary tool for the Commission to be effective in the 21st century because it needs to have ready access to timely, detailed, and accurate market information to oversee the capital markets.

[42] Shagun Bali, The Consolidated Audit Trail: Stitching Together the US Securities Markets, Tabb Forum (Mar. 4, 2015), available at

[43] For example, the Commission’s Office of Compliance Inspections and Examinations, or OCIE, established a Quantitative Analytics Unit to expand the scope of its data collection and analysis program. U.S. Securities and Exchange Commission, Agency Financial Report, p. 13 (Fiscal Year 2014), available at In addition, the National Exam Analytics Tool system, or NEAT, allows the Commission’s examination staff to review trading data and transactions within minutes. Id. at p. 14. OCIE’s Risk Assessment and Surveillance Group also aggregate and analyze data from SEC filings to identify activity that may warrant examination, and the Risk Analysis Examination Group use technology to examine clearing firms and large broker-dealers and identify problematic behaviors. Id. at p. 29.

In 2013, the Commission’s Division of Economic and Risk Analysis, or DERA, established its Quantitative Research Analytical Data Support program, or QRADS. Id. at p. 36. This program, among other things, generated standardized quantitative reports of financial markets and registrant activities to help the Commission better understand the capital markets and identify risk areas. Id. at p. 36. The Commission tasked DERA’s recently created Office of Risk Assessment with deploying data-driven analytics to assist in identifying financial market risk. p. 41.

[44] The Commission’s Office of Analytics and Research with the Division of Trading and Markets developed several tools to help it better use data to oversee the market and inform its examination program. See U.S. Securities and Exchange Commission, Agency Financial Report, p. 18 (Fiscal Year 2014), available at One of these tools, MIDAS, collects and analyzes market data obtained from exchanges to provide the Commission and the public an overview of the market structure, including trading speed, quote lifetimes, trade-to-order volume rations, hidden volume ratios, and odd lot rates. See id. at p. 14, 18.

[45] SEC Website, Market Structure: MIDAS (Market Information Data Analytics System),available at (last visited Mar. 14, 2015).

[46] Id.

[47] See U.S. Securities and Exchange Commission, Agency Financial Report, p. 153 (Fiscal Year 2014), available at The Aberrational Performance Inquiry is a joint effort among the staff in the Enforcement Division, OCIE, and DERA. See id.

[48] In re GLG Partners, Inc. et al. (Dec. 12, 2013), available at The other cases were SEC v. Yorkville Advisors, LLC et al. (S.D.N.Y. filed Oct. 17, 2012), available at v. Balboa et al. (S.D.N.Y. filed Dec. 1, 2011), available at v. Rooney et al. (N.D. Ill. filed Nov. 18, 2011), available at re LeadDog Capital Markets, LLC et al.(Nov. 18, 2011) , available at v. Kapur et al. (S.D.N.Y. filed Nov. 18, 2011), available at v. Reid et al. (S.D. Ga. filed Feb. 1, 2011), available at; and SEC v. Neufeld et al. (N.D. Ill. filed Apr. 19, 2010), available at

[49] U.S. Securities and Exchange Commission, FY 2015 Budget Request By Program, p. 50,available at; Testimony of Robert Khuzami, Director, Division of Enforcement, Before the United States Senate Committee on Homeland Security and Governmental Affairs, Statement on the Application of Insider Trading Law to Trading by Members of Congress and Their Staffs (Dec. 1, 2011), available at

[50] See Craig M. Lewis, Chief Economist, U.S. Securities and Exchange Commission, Risk Modeling at the SEC: The Accounting Quality Model (Dec. 13, 2012), available at

[51] U.S. Securities and Exchange Commission, Agency Financial Report, p. 38 (Fiscal Year 2014), available at

[52] SEC Website, The Securities and Exchange Commission Post-Madoff Reformsavailable at U.S. Securities and Exchange Commission, 2014 Annual Report to Congress on the Dodd-Frank Whistleblower Program, p. 9 (Nov. 17, 2014), available at In addition, since 2011, the SEC’s Office of the Whistleblower has received more than 10,000 whistleblower tips, and, in Fiscal Year 2014 alone, received 3,620 whistleblower TCRs—the highest in the whistleblower program’s short history—and made its largest award of more than $30 million to a single whistleblower who provided original information that led to a successful SEC enforcement action. See id. at pp. 3, 9-10, and 20.

[53] For example, as far back as 2003, the Commission required officers, directors, and principal owners to provide beneficial ownership information under Section 16(a) of the Exchange Act to the Commission in XML format or through the Commission’s online forms Web site that tags the information in XML. For these purposes, XML refers to eXtensible Marking Language format.Mandated Electronic Filing and Web Site Posting for Forms 3, 4 and 5, SEC Release No. 33-8230 (May 7, 2003), available at See also Electronic Filing and Revision of Form D, SEC Release No. 8891 (Feb. 6, 2008), available at ; Interactive Data to Improve Financial Reporting, SEC Release No. 33-9002 (Jan. 30, 2009), available at, as corrected by Interactive Data to Improve Financial Reporting, SEC Release No. 33-9002A (Apr. 1, 2009), available at Data for Mutual Fund Risk/Return Summary, SEC Release No. 33-9006 (Feb. 11, 2009), available at, as corrected by Interactive Data for Mutual Fund Risk/Return Summary; Correction, Release No. 33-9006A (May 1, 2009), available at to Rules for Nationally Recognized Statistical Rating Organizations, SEC Release No. 34-61050 (Nov. 23, 2009),available at, and Amendments to Rules for Nationally Recognized Statistical Rating Organizations, Release No. 34-59342 (Feb. 2, 2009),available at; and Money Market Fund Reform, SEC Release No. IC- 29132 (Feb. 23, 2010), available at

[54] See SEC Investor Advisory Committee, Recommendations of the Investor Advisory Committee Regarding the SEC and the Need for the Cost Effective Retrieval of Information by Investors (Adopted July 25, 2013), available at

[55] Interactive Data to Improve Financial Reporting, SEC Release No. 33-9002 (Jan. 30, 2009),available at, as corrected by Interactive Data to Improve Financial Reporting, SEC Release No. 33-9002A (Apr. 1, 2009), available at

[56] Interactive Data for Mutual Fund Risk/Return Summary, SEC Release No. 33-9006 (Feb. 11, 2009), available at, as corrected byInteractive Data for Mutual Fund Risk/Return Summary; Correction, SEC Release No. 33-9006A (May 1, 2009), available at

[57] Amendments to Rules for Nationally Recognized Statistical Rating Organizations, Release No. 34-61050 (Nov. 23, 2009), available at,and Amendments to Rules for Nationally Recognized Statistical Rating Organizations, SEC Release No. 34-59342 (Feb. 2, 2009), available at

[58] See SEC Website, Division of Economic and Risk Analysis, Financial Statement Data Sets,available at (last checked on March 11, 2015). See also SEC Press Release No. 2014-295, SEC Announces Program to Facilitate Analysis of Corporate Financial Data, (Dec. 30, 2014), available at

[59] The SEC used data tagging to enhance its data analytics for enforcement purposes. For example, in 2012, the Director of the SEC’s Division of Economic and Risk Analysis (“DERA”) (then known as the Division of Risk, Strategy and Financial Innovation) described a program called the Accounting Quality Model (“AQM”) that allowed the staff of the Division of Corporation Finance and the Division of Enforcement to determine whether an issuer’s financial statements “stick out from the pack” in a way that would require a deeper review by the staff. See Craig M. Lewis, Chief Economist, U.S. Securities and Exchange Commission, Risk Modeling at the SEC: The Accounting Quality Model (Dec. 13, 2012), available at Specifically, DERA’s project undertook to identify possible indicia of possibly fraudulent “earnings management,” such as outlier discretionary accruals that could signify earnings manipulation. See id. See also, the discussion above and associated text describing the SEC’s Aberrational Performance Inquiry, which uses data analytics to comb information from, among other things, tagged data in Forms PF filed by investment advisers to private funds. See U.S. Securities and Exchange Commission,Annual Staff Report Relating to the Use of Data Collected from Private Fund Systemic Risk Reports (Aug. 15, 2014), available at

[60] Money market funds are required to submit this information monthly via Form N-MFP. See Money Market Fund Reform, SEC Release No. IC-29132 (Feb. 23, 2010), available at

[61] Comments by Sharon Pichler, Senior Financial Analyst, Division of Investment Management, Risk and Examinations Office, at 2015 SEC Speaks (Feb. 21, 2015). The Eurozone included the following countries: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Greece, Cyprus, Malta, Slovenia, Slovakia, and Estonia. SeeAshoka Mody and Damiano Sandri, The Eurozone Crisis: How Banks and Sovereigns Came to be Joined at the Hip, IMF Working Paper, p. 3 n. 3 (Nov. 2011), available at

[62] See U.S. Securities and Exchange Commission, Division of Risk, Strategy, and Financial Innovation, Response to Questions Posed by Commissioners Aguilar, Paredes, and Gallagher, pp. 31-35, (Nov. 30, 2012), available at; Comments by Sharon Pichler, Senior Financial Analyst, Division of Investment Management, Risk and Examinations Office, at 2015 SEC Speaks (Feb. 21, 2015);. Similarly, the Division of Investment Management’s Risk and Examinations Office (REO) was able to conclude that money market funds were not holding excessive amounts of municipal bonds issued by Detroit and Puerto Rico, as had been feared. Id.

[63] See Sections 951-957 of the Dodd-Frank Act.

[64] In its 2010 Concept Release on the U.S. Proxy System, the Commission stated that if issuers provided reportable items in interactive data format, “shareholders may be able to more easily obtain specific information about issuers, compare information across different issuers, and observe how issuer-specific information changes over time as the same issuer continues to file in an interactive data format.” See Concept Release on the U.S. Proxy System, SEC Release No. 34-62495 (July 14, 2010) at p. 99, available at In addition, see the discussion above in footnote 65 regarding the Investor Advisory Committee’s recommendations on data tagging.

[65] U.S. Securities and Exchange Commission, FY 2015 Budget Request By Programavailable at Funding the SEC appropriately will also support the Commission’s commitment to a multi-year technology transformation plan called “Working Smarter,” under which the agency will work to standardize enterprise-wide platforms, modernize the SEC’s website and EDGAR filer system, develop advanced search and discovery capabilities, and build complex, predictive analytical capabilities.See U.S. Securities and Exchange Commission, Agency Financial Report, p. 43 (Fiscal Year 2014), available at

[66] This suggestion is supported by the Commission’s Investor Advisory Committee (“IAC”), which in 2013 recommended that the Commission immediately prioritize tagging important information with respect to various corporate governance issues, including portions of the proxy statement that relate to executive compensation and matters voted upon by shareholders. The IAC added that tagging the voting data and results contained in certain forms could result in more informed voting and investment decisions, and would facilitate comparisons among public companies. See SEC Investor Advisory Committee, Recommendations of the Investor as Owner Subcommittee Regarding the SEC and the Need for the Cost Effective Retrieval of Information by Investors (July 25, 2013), available at (describing recommendations to include tagging revisions in the proxy statement on Schedule 14A, in Form N-PX filed by mutual funds (where such forms include the registrant’s proxy voting record for the most recent 12 month period), and voting results filed with the Form 8-K.).

[67] SEC Office of International Affairs, International Enforcement Assistanceavailable at (last visited Mar. 14, 2015).

[68] See Robert G. DeLaMater, Recent Trends in SEC Regulation of Foreign Issuers: How the U.S. Regulatory Regime Is Affecting the United States’ Historic Position as the World’s Principal Capital Market, 39 Cornell Int’l L.J. 109, 117 (2006) (“The securities markets outside the United States have grown in breadth and depth of their own over the past twenty years and now afford issuers in their home countries significant opportunities for financing that did not previously exist.”), available at

[69] See Eric C. Chafee, The Internationalization of Securities Regulation: The United States Government’s Role in Regulating the Global Capital Markets, 5 J. Bus. & Tech. L. 187, 190 (Spring 2010), available at

[70] Many observers are concerned that automatically adopting international standards on a wholesale basis may result in weakening an otherwise strong SEC regulatory framework in the interest of global harmonization. As one commentator stated, the United States should establish regulatory standards for the global securities markets from which nations could “upwardly depart.” Eric C. Chafee, The Internationalization of Securities Regulation: The United States Government’s Role in Regulating the Global Capital Markets, 5 J. Bus. & Tech. L. 187, 205 (Spring 2010). Given today’s interconnected global securities markets, however, joint international efforts are needed to lessen regulatory fragmentation and to adopt effective and robust standards that protect investors and the markets. To this end, the SEC has worked with a long list of international organizations, including the International Organization of Securities Commissions (“IOSCO”). Established in 1983, IOSCO counts among its membership more than 95% of the world’s securities markets in more than 115 jurisdictions. See International Organization of Securities Commissions, About IOSCOavailable at (last visited Mar. 14, 2015). It works to coordinate, and, where possible, set appropriate global standards for securities regulation and promote adherence to those standards, covering all aspects of the capital markets. See id.; International Organization of Securities Commissions, Fact Sheet, p. 4 (Nov. 2014), available at (last visited Mar. 14, 2015) (covering broad areas such as accounting, secondary markets, market intermediaries, enforcement, investment management, credit rating agencies, derivatives, and retail investor issues). The SEC also engages with other international organizations, including the Council of Securities Regulators of the Americas (“COSRA”), the Financial Action Task Force (“FATF”), the Joint Forum, the Monitoring Group, the IFRS Foundation Monitoring Board, and the Organization for Economic Cooperation and Development (“OECD”). See SEC Office of International Affairs, Advancing the SEC’s Mission through International Organizationsavailable at (last visited Mar. 14, 2015). Moreover, the SEC also works closely with the Financial Stability Board (“FSB”). The FSB works to promote international financial stability by coordinating between financial regulators and international standard-setting bodies to develop regulatory, supervisory, and other financial sector policies. See Financial Stability Board, About the FSB: What We Doavailable at (last visited Mar. 14, 2015).

[71] This estimated percentage was based on information received from the Commission’s Office of International Affairs, and data was only analyzed for FY 2013. The percentage of enforcement cases with an international component is significantly higher because the SEC routinely seeks assistance from foreign regulators in obtaining information in their jurisdictions, including documents and testimony from foreign witnesses.

[72] U.S. Securities and Exchange Commission, FY 2015 Budget Request By Program, pp. 95-96, available at

[73] U.S. Securities and Exchange Commission, Office of International Affairs: International Enforcement Assistanceavailable at (last visited Mar. 14, 2015). In 2002, the SEC was among the first signatories to IOSCO’s Multilateral Memorandum of Understanding (“MMOU”), which enables securities regulators around the world to help each other conduct securities fraud investigations. As of February 2014, there were 103 signatories to the MMOU. OICU-IOSCO, Current Signatories and Members Listed on Appendix Bavailable at (last visited Mar. 14, 2015). An additional 19 regulators, including Russia, are seeking legal authority in their home countries to enable them to become signatories to the MMOU. See id.

[74] See FY 2015 Budget Request By Program, p. 98, available at

[75] U.S. Securities and Exchange Commission, FY 2016 Congressional Budget Justification, FY 2016 Annual Performance Plan, FY 2014 Annual Performance Report, p. 30, available at

[76] U.S. Securities and Exchange Commission, Office of International Affairs: International Enforcement Assistanceavailable at (last visited Mar. 14, 2015) (list of cases in the area of insider trading, securities fraud, market manipulation, and Foreign Corrupt Practices Act). For example, in the SEC’s $200 million settled case against JPMorgan Chase for failing to detect and prevent its traders from fraudulently overvaluing investments to conceal millions in trading losses—often referred to as the London Whale trades—the SEC received substantial assistance from the United Kingdom’s Financial Conduct Authority. SEC Press Release No. 2013-187, JPMorgan Chase Agrees to Pay $200 million and Admits Wrongdoing to Settle SEC Charges: Firm Must Pay $920 Million in Total Penalties in Global Settlement (Sept. 19, 2013), available at

[77] See FY 2015 Budget Request By Program, p. 98, available at

[78] U.S. Securities and Exchange Commission, Office of International Affairs: International Enforcement Assistanceavailable at (last visited Mar. 14, 2015).

[79] For example, in 2012, the Commission instituted administrative proceedings against several foreign auditors in China for failure to produce audit work papers in contravention of their legal obligations. In the Matter of BDO China Dahua CPA Co., Ltd., et al., Exchange Act Release No. 68335 (Dec. 3, 2012), available at, it was not until January 2014, when the SEC prevailed at an administrative hearing, before the SEC started receiving productions of work papers from the audit firms through assistance provided by the regulators in China. SEC Press Release No. 2015-25, SEC Imposes Sanctions Against China-Based Members of Big Four Accounting Networks for Refusing to Produce Documents (Feb. 6, 2015), available at

[80] Ana Carvajal and Jennifer Elliott, The Challenges of Enforcement in Securities Markets: Mission Impossible?, IMF Working Paper, pp. 5 fn. 2, 34 (Aug. 2009), available at

[81] See, S. Rep. No. 337, 101st Cong., 2d Sess. 1990 at 1.

[82] Commissioner Luis A. Aguilar, Taking a No-Nonsense Approach to Enforcing the Federal Securities Laws (Oct. 18, 2012), available at

[83] Edward L. Carmody, Section IV.D: Administrative Law: Recognition of Foreign Administrative Acts, 62 Am. J. Comp. L. 589, 609 (2014).

[84] Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.

[85] In Morrison v. National Australia Bank, Ltd., 130 S. Ct. 2869 (2010), the U.S. Supreme Court severely restricted the extraterritorial scope of the federal securities laws’ primary enforcement tool—the antifraud provision of Section 10(b) of the Securities Exchange Act of 1934. After Morrison, investors are limited to bringing Section 10(b) claims only if those claims relate to frauds on an American stock exchange or involved security transactions in the United States. Id. at 2888; see also, id. at 2884 (“[I[t is in our view only transactions in securities listed on domestic exchanges, and domestic transactions in other securities, to which §10(b) applies.”). As a result, investors have been hampered in their ability to seek redress against those who harmed them through cross-border securities fraud. Because of Morrison, and given the global nature of our capital markets, the SEC faces challenges in pursuing transnational securities fraud on its own, especially when fraudsters and critical evidence are located within foreign jurisdictions. In these situations, the SEC will need to work with its fellow regulators around the world to see what can be done to prevent fraud from flowing into the United States to rip-off American investors.

[86] See, Section 101(a), Sarbanes-Oxley Act of 2002, as amended, 15 U.S.C.A. §§ 7201-7266 (the “Sarbanes-Oxley Act”).

[87] See PCAOB website, International subsection, available at Since 2005, the PCAOB has conducted inspections of registered accounting firms in 44 foreign jurisdictions. See PCAOB 2013 Annual Report, at p. 8, available at

[88] See PCAOB 2013 Annual Report, at pp. 8-9, available at In fact, the European Commission had to issue a decision recognizing the PCAOB as “adequate” to exchange audit working papers with EU member state audit regulators; and only then could these regulators enter into a cooperative agreement with the PCAOB as a condition for carrying out inspections of PCAOB-registered auditors in those states. See id. See, also PCAOB Enters Into Cooperative Agreement with German Audit Regulator (Apr. 13, 2012), available at; PCAOB Enters Into Cooperative Agreement with the Netherlands (Dec. 5, 2011), available at

[89] In 2011, for example, the PCAOB was able to resume inspections in the UK under a cooperative arrangement with the UK regulatory authorities. See PCAOB Enters into Cooperative Agreement with United Kingdom Audit Regulator (Jan. 10, 2011), available at Moreover, since April 2011, the PCAOB has entered into similar arrangements that allow for joint inspections of registered accounting firms in 13 additional countries, including nine European countries and Japan, Taiwan, Israel, and Dubai. See PCAOB website, International subsection, Regulatory Cooperation, available at visited on Mar. 14, 2015).

[90] As of June 30, 2014, the PCAOB was unable to conduct inspections of firms located in 14 jurisdictions (Austria, Belgium, China, Cyprus, the Czech Republic, Greece, Hong Kong, Hungary, Ireland, Italy, Luxembourg, Poland, Portugal, and Venezuela). See PCAOB Website, Registered Firms Not Yet Inspected Even Though Four or More Years Have Passed Since Issuance of an Audit Report While Registered (as of June 30, 2014)available at (updated to exclude Denmark, as the PCAOB entered into a cooperative framework with the Danish audit regulator on July 18, 2014). See PCAOB Enters Into Cooperative Agreement with Denmark Audit Regulator (July 18, 2014), available at The number of registered accounting firms in these jurisdictions comes from the PCAOB’s website. See PCAOB Website, International subsection, International Registration subsection, Non-U.S. Registered Firms,available at

In the countries in which the PCAOB is unable to conduct inspections, at best, the PCAOB has to rely on local regulators to inspect the PCAOB-registered accounting firms and then to share its findings and audit materials. In China, for example, the best the PCAOB has been able to achieve thus far is entering into a cooperative arrangement with the Chinese regulators for the production and exchange of audit documents relevant to investigations in both countries’ respective jurisdictions. See PCAOB Enters into Enforcement Cooperation Agreement with Chinese Regulators (May 24, 2013), available at In this regard, the breakthrough settlement that the SEC achieved in February 2015 with four registered accounting firms in China—Deloitte Touche Tohmatsu Certified Public Accountants Ltd. (“DTTC”), Ernst & Young Hua Ming LLP (“EYHM”); KPMG Huazhen (Special General Partnership) (“KPMG Huazhen”); and PricewaterhouseCoopers Zhong Tian CPAs Limited Company (“PwC Shanghai”)—to produce audit workpapers in response to Commission Division of Enforcement subpoenas is consistent with the PCAOB’s cooperative arrangement with Chinese regulators to share audit documents relevant to investigations. See In the Matter of BDO China Dahua CPA Co., Ltd., et al. Exchange Act Release No. 74217 (Feb. 6, 2015), available at While the Commission’s settlement with these accounting firms provides for production of audit workpapers in response to investigations, it does not resolve that the PCAOB is still not able to conduct in-person inspections of such firms in China.

[91] For example, the S&P 500 index has almost tripled from its low point during the financial crisis—the S&P 500 index on January 1, 2009 was at around 790, which had risen to more than 2,100 as of January 1, 2015. See Yahoo! Finance, S&P 500 data from January 1, 2005 (1,180.59) to January 1, 2015 (2,110.74), available at (During the recent financial crisis, the S&P 500 was at 797.87 on January 1, 2009). Recent reports indicate that investor confidence is rising. See Center for Audit Quality, The CAQ’s Eight Annual Main Street Investor Survey: Focus on Weathering Risk, p. 8, (Oct. 2014),available at’s-8th-annual-main-street-investor-survey-focus-on-weathering-the-risk (In late 2014, an all-time high of 80% of investors said that they are now confident in investing in U.S. public companies.). For example, in 2014, almost 73% of investors said that they have confidence in the U.S. capital markets, an increase from 70% in 2008 and a significant jump from a low of 61% in 2011. See id. at p. 3. According to the same report, one of the main reasons for investors’ confidence is trust in the U.S. government. See id. at p. 4. Inversely, many of those who lack confidence in the U.S. capital markets blamed a lack of leadership in government. See id. at p. 5.

[92] Over just a relatively short period, cybersecurity has become a top concern for operating companies, financial institutions, law enforcement, and a host of global regulators. For example, the Director of the Federal Bureau of Investigation (FBI), James Comey, said last November that “resources devoted to cyber-based threats will equal or even eclipse the resources devoted to non-cyber based terrorist threats.” See, Testimony of James B. Comey, Jr., Director, FBI, U.S. Department of Justice, before the Senate Committee on Homeland Security and Governmental Affairs (Nov. 14, 2013), available at also, Testimony of Jeh C. Johnson, Secretary, U.S. Department of Homeland Security, before the House Committee on Homeland Security (Feb. 26, 2014) (“DHS must continue efforts to address the growing cyber threat to the private sector and the ‘.gov’ networks, illustrated by the real, pervasive, and ongoing series of attacks on public and private infrastructure.”), available at; Testimony of Ari Baranoff, Assistant Special Agent in Charge, United States Secret Service Criminal Investigative Division, before the House Committee on Homeland Security, Subcommittee on Cybersecurity, Infrastructure Protection, and Security Technologies (Apr. 16, 2014), available at (“Advances in computer technology and greater access to personally identifiable information (PII) via the Internet have created online marketplaces for transnational cyber criminals to share stolen information and criminal methodologies. As a result, the Secret Service has observed a marked increase in the quality, quantity, and complexity of cybercrimes targeting private industry and critical infrastructure.”); The Honorable Leon Panetta, Remarks by Secretary of Defense Leon E. Panetta to the Business Executives for National Security (Oct. 11, 2012), available at (“As director of the CIA and now Secretary of Defense, I have understood that cyber attacks are every bit as real as the more well-known threats like terrorism, nuclear weapons proliferation and the turmoil that we see in the Middle East. And the cyber threats facing this country are growing.”).


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