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

3/26/2015 SEC.gov | Preparing for the Regulatory Challenges of the 21st Century
http://www.sec.gov/news/speech/preparingforregulatorychallengesof21stcentury.html#.VRPWvPmUeCl 1/27
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 frontrow 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 firsthand 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 swornin 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 shortterm 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 DoddFrank Act[10] expanded the SEC’s authority and jurisdiction.
As a result, during my tenure, a refocused SEC has tackled headon 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. 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 assetbacked
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.
Many of these rulemakings have been groundbreaking. Still, even with all of this activity,
the Commission remains behind on many of its mandates under the DoddFrank 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 lessregulated overseas markets can ultimately come
to our shores.[21]
[14]
[17]
[18]

The Commission’s efforts continue across a wide range of regulatory initiatives, any of which
are worthy of an indepth 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, hightech, automated trading has come to dominate
the world’s capital markets. This reliance on technology has resulted in a market structure
increasingly characterized by highspeed 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 45minute 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 socalled “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
brickandmortar 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 5075% 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 highspeed 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 selffunded 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 publiclytraded companies that file reports with the SEC,[39] and the
15,00016,000 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 gamechanger 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 offexchange 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 dataanalytic tools to assist its
enforcement investigations. For example, the Enforcement Division is using a sophisticated,
datadriven, 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 userfriendly for the public to submit tips, as well as to provide the SEC staff with the
automated ability to access and analyze realtime 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 XBRLtagged 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 realtime 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 DoddFrank 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 cuttingedge 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
“racetothebottom.”[70]
Fostering a Global Environment for Combating Fraud
An important aspect of international cooperation, of course, is addressing crossborder 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 informationsharing 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 crossborder
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 crossborder 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 crossborder fraud on American investors is further exacerbated by the Supreme
Court decision in Morrison v. National Australian Bank, Ltd. that limits the antifraud 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 proactively 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 publiclytraded 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 highquality professional standards.
The PCAOB’s experience shows how difficult it is to develop crossborder 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.
Conclusion
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
cyberattacks and the impact of highfrequency 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 wellinformed and wellfunded 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 http://finance.yahoo.com/echarts?
s=%5Egspc+interactive#%7B%22range%22%3A%22max%22%2C%22scale%22%3A%22line
ar%22%7D.

[2] FDIC Quarterly, Feature Article: The Orderly Liquidation of Lehman Brothers Holdings Inc.
under the DoddFrank Act, Vol. 5, No. 2, pp. 1, 12 (Early Release for the Upcoming 2011),
available at https://www.fdic.gov/bank/analytical/quarterly/2011_vol5_2/lehman.pdf.
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
https://www.sec.gov/news/press/2009/report102109.pdf.
[5] See, e.g., Nick Mathiason, Three weeks that changed the world, The Guardian (Dec. 27,
2008), available at http://www.theguardian.com/business/2008/dec/28/marketscreditcrunch
banking2008 (“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
https://www.sec.gov/news/press/2009/report102109.pdf.
[7] Id.
[8] SEC Website, The Securities and Exchange Commission PostMadoff Reforms, available at
http://www.sec.gov/spotlight/secpostmadoffreforms.htm#revitalize.
[9] Chair Mary Jo White, The Importance of Independence (Oct. 3, 2013), available at
http://www.sec.gov/News/Speech/Detail/Speech/1370539864016#_ftnref13; Jill E. Fisch, Top
Cop or Regulatory Flop? The SEC at 75, 95 Va. L. Rev. 785, 786789 (June 2009), available at
http://www.virginialawreview.org/sites/virginialawreview.org/files/785.pdf; Marcy Gordon,
Obama’s financial watchdog plan faces big hurdles, Real Clear Markets (May 20, 2009),
available at
http://www.realclearmarkets.com/news/ap/finance_business/2009/May/20/obama_s_financial
_watchdog_plan_faces_big_hurdles.html (last visited Mar. 14, 2015).
[10] DoddFrank Wall Street Reform and Consumer Protection Act (the “DoddFrank Act”), Pub.
L. 111203, § 410 (2010).
[11] SEC Press Release No. 20105, SEC Names New Specialized Unit Chiefs and Head of New
Office of Market Intelligence (Jan. 13, 2010), available at
http://www.sec.gov/news/press/2010/20105.htm. 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. 2009199, SEC Announces
3

New Division of Risk, Strategy, and Financial Innovation (Sept. 16, 2009), available at
http://www.sec.gov/news/press/2009/2009199.htm.; SEC Press Release No. 2013104, SEC
Renames Division Focusing On Economic and Risk Analysis (June 6, 2013), available at
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171575272.
http://www.sec.gov/spotlight/secpostmadoffreforms.htm#revitalize.
[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. 3472936 (Aug.
27, 2014), available at http://www.sec.gov/rules/final/2014/3472936.pdf; Commissioner Luis
A. Aguilar, Restoring Integrity to the Credit Rating Process (Aug. 27, 2014), available at
http://www.sec.gov/News/PublicStmt/Detail/PublicStmt/1370542769492.
[16] See Credit Risk Retention, SEC Release No. 3473407 (Oct. 22, 2014), available at
http://www.sec.gov/rules/final/2014/3473407.pdf; AssetBacked Securities Disclosure and
Registration, SEC Release No. 339638 (Sept. 4, 2014), available at
http://www.sec.gov/rules/final/2014/339638.pdf; Commissioner Luis A. Aguilar, Skin in the
Game: Aligning the Interests of Sponsors and Investors (Oct. 22, 2014), available at
http://www.sec.gov/News/PublicStmt/Detail/PublicStmt/1370543250034; and Commissioner
Luis A. Aguilar, Correcting Some of the Flaws in the ABS Market (Aug. 27, 2014), available at
http://www.sec.gov/News/PublicStmt/Detail/PublicStmt/1370542768870. With respect to the
adopted rules covering assetlevel disclosures of assetbacked 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 AssetBacked
Securities Disclosure and Registration, SEC Release No. 339638 (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 securitybased swap dealer and
major securitybased swap participants in the crossborder context (Application of “Security
Based Swap Dealer” and “Major SecurityBased Swap Participant” Definitions to CrossBorder
SecurityBased Swap Activities, SEC Release No. 3472472 (June 25, 2014), available at
http://www.sec.gov/rules/final/2014/3472472.pdf); 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. BHCA1 (Dec. 10, 2013), available at
http://www.sec.gov/rules/final/2013/bhca1.pdf); rules enhancing the custody practices of
investment advisers (Custody of Funds or Securities of Clients by Investment Advisers, SEC
Release No. IA2968 (Dec. 30, 2009), available at http://www.sec.gov/rules/final/2009/ia
2968.pdf); and significant amendments to the rules governing nationally recognized statistical
rating organizations (Amendments to Rules for Nationally Recognized Statistical Rating
Organizations, SEC Release No. 3459342 (Feb. 2, 2009), available at
http://www.sec.gov/rules/final/2009/3459342.pdf; and Amendments to Rules for Nationally
Recognized Statistical Rating Organizations, SEC Release No. 3461050 (Nov. 23, 2009),

available at http://www.sec.gov/rules/final/2009/3461050.pdf). 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. 339616 (July 23, 2014), available at
http://www.sec.gov/rules/final/2014/339616.pdf); rule amendments to strengthen the
custody practices of brokerdealers (BrokerDealer Reports, SEC Release No. 3470073 (July
30, 2013), available at http://www.sec.gov/rules/final/2013/3470073.pdf); rules to prohibit
paytoplay activity in the investment advisory industry (Political Contributions by Certain
Investment Advisers, SEC Release No. IA3043 (July 1, 2010), available at
http://www.sec.gov/rules/final/2010/ia3043.pdf); improvements to the shortselling rules
(Amendments to Regulation SHO, SEC Release No. 3460388 (July 27, 2009), available at
http://www.sec.gov/rules/final/2009/3460388.pdf; and Amendments to Regulation SHO, SEC
Release No. 3461595 (Feb. 26, 2010), available at http://www.sec.gov/rules/final/2010/34
61595.pdf); and rules to enhance municipal securities disclosure (Amendment to Municipal
Securities Disclosure, SEC Release No. 3462184A (May 27, 2010), available at
http://www.sec.gov/rules/final/2010/3462184a.pdf).
[18] See id.
[19] See Jumpstart Our Business Startups Act, Pub. L. No. 112106, 126 Stat. 306 (Apr. 5,
2012).
[20] For example, the SEC needs to improve disclosures related to targetdate funds and
municipal securities. See Commissioner Luis A. Aguilar, Advocating for Investors Saving for
Retirement (Feb. 5, 2015), available at http://www.sec.gov/news/speech/advocatingfor
investorssavingforretirement.html. 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 brokerdealers 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
http://www.sec.gov/News/Speech/Detail/Speech/1370542004312; Commissioner Luis A.
Aguilar, Statement at Open Meeting on Regulation SCI (Nov. 19, 2014), available at
http://www.sec.gov/News/PublicStmt/Detail/PublicStmt/1370543491121; Commissioner Luis
A. Aguilar, Enhancing the Stability and Safety of Clearing Agencies (Mar. 12, 2014), available at
http://www.sec.gov/News/PublicStmt/Detail/PublicStmt/1370542555999; Commissioner Luis
A. Aguilar, The Need for Greater Secondary Market Liquidity for Small Businesses (Mar. 4,
2015), available at http://www.sec.gov/news/statement/needforgreatersecondarymarket
liquidityforsmallbusinesses.html; Commissioner Luis A. Aguilar, The Importance to the
Capital Markets of Updating the Rules Regarding Transfer Agents (Dec. 17, 2014), available at
http://www.sec.gov/news/statement/spch1217142laa.html.
[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, DoddFrank
Progress Report, p. 6 (Dec. 1, 2014), available at http://www.davispolk.com/DoddFrank
RulemakingProgressReport (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. 2014123, SEC

Adopts CrossBorder SecurityBased Swap Rules (June 25, 2014), available at
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542163722 (According to
data analyzed by the staff of the SEC, a majority of transactions in singlename credit default
swaps on U.S. reference entities involved one or more counterparties located overseas, with
approximately 48% entered into between one U.Sdomiciled 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 DoddFrank Act (International Harmonization): “In
order to promote effective and consistent global regulation of swaps and securitybased 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, securitybased swaps, swap entities, and securitybased swap entities and may
agree to such informationsharing arrangements as may be deemed to be necessary or
appropriate in the public interest or for the protection of investors, swap counterparties, and
securitybased swap counterparties.”
See also CrossBorder SecurityBased Swap Activities; ReProposal of Regulation SBSR and
Certain Rules and Forms Relating to the Registration of SecurityBased Swap Dealers and Major
SecurityBased Swap Participants, SEC Release No. 3469490, (May 1, 2013), available at
http://www.sec.gov/rules/proposed/2013/3469490.pdf; Comment letter from Better Markets
to the Securities and Exchange Commission, CrossBorder Regulation, at pp. 23 (Apr. 19,
2013) (“Weak crossborder 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
http://comments.cftc.gov/PublicComments/ViewComment.aspx?id=58309&SearchText
(“Failure to apply DoddFrank 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
http://www.sec.gov/News/PublicStmt/Detail/PublicStmt/1370542573918.
[22] Jill E. Fisch, Top Cop or Regulatory Flop? The SEC at 75, 95 Va. L. Rev. 785, 820 (June
2009), available at http://www.virginialawreview.org/sites/virginialawreview.org/files/785.pdf.
[23] See, e.g., Concept Release on Equity Market Structure, SEC Release No. 3461358, p. 7
(Jan. 14, 2010), available at http://www.sec.gov/rules/concept/2010/3461358.pdf.
[24] See, Michael A. Goldstein, et al., Computerized and HighFrequency Trading, The Financial
Review 49, pp. 187 and n. 22, 188 and n. 23 (2014), available at
http://www.babson.edu/Academics/centers/cutlercenter/Documents/computerizedandhigh
frequencytrading.pdf.
[25] See, e.g., Concept Release on Equity Market Structure, SEC Release No. 3461358, p. 58
(Jan. 14, 2010), available at http://www.sec.gov/rules/concept/2010/3461358.pdf.

[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.
See 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
http://www.sec.gov/news/studies/2010/marketeventsreport.pdf.
[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. 315570, Securities Exchange Act Release No. 3470694 (October
16, 2013), available at http://www.sec.gov/litigation/admin/2013/3470694.pdf; PR Newswire,
Knight Capital Group Provides Update Regarding August 1st Disruption To Routing In NYSE
listed Securities (Aug. 2, 2012), available at http://www.prnewswire.com/newsreleases/knight
capitalgroupprovidesupdateregardingaugust1stdisruptiontoroutinginnyselisted
securities164724626.html. Some of the betterknown 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 http://www.reuters.com/article/2013/10/25/usnasdaqfacebook
claimsidUSBRE99O0TK20131025 (estimating major market makers lost up to $500
million in the IPO).
On August 22, 2013, the trading of more than 2,000 NASDAQlisted 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 NASDAQ
OMX Issues Statement on the Securities Information Processor (Aug. 22, 2013), available
at http://ir.nasdaqomx.com/releasedetail.cfm?ReleaseID=786871; Tom Bemis, $5.7
trillion locked up by Nasdaq trading halt, MarketWatch (Aug. 22, 2013), available at
http://blogs.marketwatch.com/thetell/2013/08/22/57trillionlockedupbynasdaq
tradinghalt/. 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 technologyrelated 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
http://www.ft.com/intl/cms/s/0/f95200d609ad11e3ad07
00144feabdc0.html#axzz3UIUGETQ7; on September 16, 2013, options trading was halted
for more than a halfhour due to a failure of the data feed that supplied options prices to
the market. See, Jacob Bunge, StockOptions Trading Halted After Data Feed Problem, Wall
Street Journal (Sept. 16, 2013), available at
http://www.wsj.com/articles/SB10001424127887323527004579079301165239372; 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 athttp://www.bloomberg.com/news/articles/201310
29/nasdaqsayshumanerrorcausedhourlonghaltindatafeed1; 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
http://www.washingtonpost.com/business/economy/2013/11/01/1719a886432311e3
a62441d661b0bb78_story.html; on November 7, 2013, a network failure at OTC Markets
Group Inc. prevented trading in thousands of unlisted shares for more than five hours. See
Jacob Bunge, et al., Glitch at OTC Markets Halts Trading of Unlisted Shares, Wall Street
Journal (Nov. 7, 2013), available at
http://www.wsj.com/articles/SB10001424052702303309504579183831541669864.
[28] See, e.g., Leslie Boni, et al., Dark Pool Exclusivity Matters, (Dec. 19, 2013), available at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2055808 (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 20092010: 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 does
not 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 lowestpriced seller on exchanges, forced largeblock 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.
3461358, available at http://www.sec.gov/rules/concept/2010/3461358.pdf.

[30] See, Market Volume Summary, available at
http://www.batstrading.com/market_summary/ (last visited Mar. 14, 2015).
[31] See, e.g., SEC Website, Exchanges, available at
http://www.sec.gov/divisions/marketreg/mrexchanges.shtml (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 http://www.bloombergview.com/quicktake/darkpools (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 http://www.reuters.com/article/2013/04/16/usregulationexchanges
darkpoolsidUSBRE93F0VI20130416 (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
http://www.banking.senate.gov/public/index.cfm?
FuseAction=Files.View&FileStore_id=56ef1df06c9a4c5399e82ad7a614afe2 (“[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) (“highfrequency
traders account for 5075% 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
http://www.sec.gov/News/Speech/Detail/Speech/1370542122012.
[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 http://www.sec.gov/news/pressrelease/20155.html (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 http://www.sec.gov/news/studies/2010/marketeventsreport.pdf (“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
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2055808 (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 20092010: 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
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=959429&download=yes.
[38] See U.S. Securities and Exchange Commission, FY 2015 Budget Request By Program, p.
5556, available at https://www.sec.gov/about/reports/secfy2015budgetrequestby
program.pdf (“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 brokerdealers 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.
program.pdf.
[41] SEC Rule 613: Consolidated Audit Trail (CAT) Website, Summary of Consolidated Audit
Trail Initiative, p. 2 (Aug. 6, 2014), available at
http://catnmsplan.com/web/groups/catnms/@catnms/documents/appsupportdocs/p571933.pd
f. It will also handle 58 billion records of orders, executions, and quote lifecycles 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
http://www.sec.gov/divisions/marketreg/rule613info.htm. 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. 3469060 (March 6, 2013), available at
https://www.sec.gov/rules/exorders/2013/3469060.pdf; 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. 3471018 (Dec. 6,
2013), available at https://www.sec.gov/rules/exorders/2013/3471018.pdf; see generally,
SEC Website, Rule 613 (Consolidated Audit Trail), available at

http://www.sec.gov/divisions/marketreg/rule613info.htm (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 http://tabbforum.com/opinions/theconsolidatedaudit
trailstitchingtogethertheussecuritiesmarkets.
[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 http://www.sec.gov/about/secpar/secafr2014.pdf. 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 brokerdealers 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 datadriven analytics to assist in identifying financial market risk.
Id. at 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 http://www.sec.gov/about/secpar/secafr2014.pdf. 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, tradetoorder 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 http://www.sec.gov/marketstructure/midas.html (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 http://www.sec.gov/about/secpar/secafr2014.pdf. 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
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540491613. The other cases
were SEC v. Yorkville Advisors, LLC et al. (S.D.N.Y. filed Oct. 17, 2012), available at
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171485332; SEC v. Balboa et

al. (S.D.N.Y. filed Dec. 1, 2011), available at http://www.sec.gov/news/press/2011/2011
252.htm; SEC v. Rooney et al. (N.D. Ill. filed Nov. 18, 2011), available at
http://www.sec.gov/news/press/2011/2011252.htm; In re LeadDog Capital Markets, LLC et
al. (Nov. 18, 2011) , available at http://www.sec.gov/news/press/2011/2011252.htm; SEC v.
Kapur et al. (S.D.N.Y. filed Nov. 18, 2011), available at
http://www.sec.gov/news/press/2011/2011252.htm; SEC v. Reid et al. (S.D. Ga. filed Feb. 1,
2011), available at http://www.sec.gov/litigation/litreleases/2011/lr21840.htm; and SEC v.
Neufeld et al. (N.D. Ill. filed Apr. 19, 2010), available at
http://www.sec.gov/litigation/litreleases/2010/lr21497.htm.
[49] U.S. Securities and Exchange Commission, FY 2015 Budget Request By Program, p. 50,
available at https://www.sec.gov/about/reports/secfy2015budgetrequestbyprogram.pdf;
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 http://www.sec.gov/news/testimony/2011/ts120111rsk.htm.
[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
https://www.sec.gov/News/Speech/Detail/Speech/1365171491988.
[51] U.S. Securities and Exchange Commission, Agency Financial Report, p. 38 (Fiscal Year
2014), available at http://www.sec.gov/about/secpar/secafr2014.pdf.
http://www.sec.gov/spotlight/secpostmadoffreforms.htm#revitalize; See U.S. Securities and
Exchange Commission, 2014 Annual Report to Congress on the DoddFrank Whistleblower
Program, p. 9 (Nov. 17, 2014), available at http://www.sec.gov/about/offices/owb/annual
report2014.pdf. 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, 910, 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. 338230 (May 7, 2003), available at http://www.sec.gov/rules/final/338230.htm.
See also Electronic Filing and Revision of Form D, SEC Release No. 8891 (Feb. 6, 2008),
available at http://www.sec.gov/rules/final/2008/338891.pdf ; Interactive Data to Improve
Financial Reporting, SEC Release No. 339002 (Jan. 30, 2009), available at
http://www.sec.gov/rules/final/2009/339002.pdf, as corrected by Interactive Data to Improve
Financial Reporting, SEC Release No. 339002A (Apr. 1, 2009), available at
http://www.sec.gov/rules/final/2009/339002a.pdf; Interactive Data for Mutual Fund
Risk/Return Summary, SEC Release No. 339006 (Feb. 11, 2009), available at
http://www.sec.gov/rules/final/2009/339006.pdf, as corrected by Interactive Data for Mutual
Fund Risk/Return Summary; Correction, Release No. 339006A (May 1, 2009), available at

http://www.sec.gov/rules/final/2009/339006a.pdf; Amendments to Rules for Nationally
Recognized Statistical Rating Organizations, SEC Release No. 3461050 (Nov. 23, 2009),
available at http://www.sec.gov/rules/final/2009/3461050.pdf, and Amendments to Rules for
Nationally Recognized Statistical Rating Organizations, Release No. 3459342 (Feb. 2, 2009),
available at http://www.sec.gov/rules/final/2009/3459342.pdf; and Money Market Fund
Reform, SEC Release No. IC 29132 (Feb. 23, 2010), available at
http://www.sec.gov/rules/final/2010/ic29132.pdf.
[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 http://www.sec.gov/spotlight/investor
advisorycommittee2012/datataggingresolution72513.pdf.
[55] Interactive Data to Improve Financial Reporting, SEC Release No. 339002 (Jan. 30,
2009), available at http://www.sec.gov/rules/final/2009/339002.pdf, as corrected by
Interactive Data to Improve Financial Reporting, SEC Release No. 339002A (Apr. 1, 2009),
available at http://www.sec.gov/rules/final/2009/339002a.pdf.
[56] Interactive Data for Mutual Fund Risk/Return Summary, SEC Release No. 339006 (Feb.
11, 2009), available at http://www.sec.gov/rules/final/2009/339006.pdf, as corrected by
Interactive Data for Mutual Fund Risk/Return Summary; Correction, SEC Release No. 339006A
(May 1, 2009), available at http://www.sec.gov/rules/final/2009/339006a.pdf.
[57] Amendments to Rules for Nationally Recognized Statistical Rating Organizations, Release
No. 3461050 (Nov. 23, 2009), available at http://www.sec.gov/rules/final/2009/3461050.pdf,
and Amendments to Rules for Nationally Recognized Statistical Rating Organizations, SEC
Release No. 3459342 (Feb. 2, 2009), available at http://www.sec.gov/rules/final/2009/34
59342.pdf.
[58] See SEC Website, Division of Economic and Risk Analysis, Financial Statement Data Sets,
available at http://www.sec.gov/dera/data/financialstatementdatasets.html (last checked on
March 11, 2015). See also SEC Press Release No. 2014295, SEC Announces Program to
Facilitate Analysis of Corporate Financial Data, (Dec. 30, 2014), available at
http://www.sec.gov/news/pressrelease/2014295.html.
[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
https://www.sec.gov/News/Speech/Detail/Speech/1365171491988. 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 http://www.sec.gov/reportspubs/special
studies/imprivatefundannualreport081514.pdf.
[60] Money market funds are required to submit this information monthly via Form NMFP. See
Money Market Fund Reform, SEC Release No. IC29132 (Feb. 23, 2010), available at
http://www.sec.gov/rules/final/2010/ic29132.pdf.
[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. See Ashoka 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 https://www.imf.org/external/pubs/ft/wp/2011/wp11269.pdf.
[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. 3135, (Nov. 30, 2012), available at https://www.sec.gov/news/studies/2012/money
marketfundsmemo2012.pdf; 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 951957 of the DoddFrank 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 issuerspecific 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. 3462495 (July 14, 2010) at p. 99, available at
https://www.sec.gov/rules/concept/2010/3462495.pdf. 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 Program, available
at https://www.sec.gov/about/reports/secfy2015budgetrequestbyprogram.pdf. Funding the
SEC appropriately will also support the Commission’s commitment to a multiyear technology
transformation plan called “Working Smarter,” under which the agency will work to standardize
enterprisewide 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 http://www.sec.gov/about/secpar/secafr2014.pdf.
[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
http://www.sec.gov/spotlight/investoradvisorycommittee2012/iacrecommendationdata
tagging.pdf (describing recommendations to include tagging revisions in the proxy statement
on Schedule 14A, in Form NPX 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 8K.).
[67] SEC Office of International Affairs, International Enforcement Assistance, available at
http://www.sec.gov/about/offices/oia/oia_crossborder.shtml#secintlcases (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
https://www.law.umich.edu/workshopsandsymposia/intlworkshopseries/Documents/R.%20DeL
aMater%20%20Cornell%20Intl%20Law%20Journal%20W06%20Speech.pdf.
[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 http://digitalcommons.law.umaryland.edu/cgi/viewcontent.cgi?
article=1144&context=jbtl.
[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 IOSCO, available at
http://www.iosco.org/about/?subsection=about_iosco (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
http://www.iosco.org/about/pdf/IOSCOFactSheet.pdf (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 Organizations, available at
http://www.sec.gov/about/offices/oia/oia_intlorg.shtml#jointforum (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 standardsetting bodies to develop regulatory, supervisory, and other financial
sector policies. See Financial Stability Board, About the FSB: What We Do, available at
http://www.financialstabilityboard.org/whatwedo/ (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
program.pdf.
[73] U.S. Securities and Exchange Commission, Office of International Affairs: International
Enforcement Assistance, available at http://www.sec.gov/oia (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. OICUIOSCO, Current Signatories and Members Listed on Appendix B, available
at http://www.iosco.org/about/?subSection=mmou&subSection1=signatories (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
https://www.sec.gov/about/reports/secfy2015budgetrequestbyprogram.pdf.
[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
http://www.sec.gov/about/reports/secfy16congbudgjust.pdf.
Enforcement Assistance, available at http://www.sec.gov/oia (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. 2013187, 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
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539819965.
[77] See FY 2015 Budget Request By Program, p. 98, available at
https://www.sec.gov/about/reports/secfy2015budgetrequestbyprogram.pdf.
Enforcement Assistance, available at http://www.sec.gov/oia (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 http://www.sec.gov/litigation/admin/2012/34
68335.pdf. However, 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.
201525, SEC Imposes Sanctions Against ChinaBased Members of Big Four Accounting
Networks for Refusing to Produce Documents (Feb. 6, 2015), available at
http://www.sec.gov/news/pressrelease/201525.html.
[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
https://www.imf.org/external/pubs/ft/wp/2009/wp09168.pdf.
[81] See, S. Rep. No. 337, 101st Cong., 2d Sess. 1990 at 1.
[82] Commissioner Luis A. Aguilar, Taking a NoNonsense Approach to Enforcing the Federal
Securities Laws (Oct. 18, 2012), available at
http://www.sec.gov/News/Speech/Detail/Speech/1365171491510#_ednref32.
[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 10b5.
[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 crossborder 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 ripoff American investors.

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

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

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