Markets need investors to work. Investors must have confidence in the market to participate. Investors depend to a large degree on the SEC for confidence in the fairness of the markets. How well the SEC functions depends on the commissioners who lead it.
Therefore, candidates to fill an upcoming vacancy for a new Securities and Exchange commissioner ought to include institutional investors and members of the plaintiffs’ bar, people familiar with how the SEC rules work from the investor side.
Roel C. Campos is stepping down as commissioner in September. Under law, the president appoints commissioners, with confirmation of the Senate.
Too often, commissioners come from the ranks of investment bankers or other people who made money representing securities firms and corporations.
They generally haven’t come from among those who made money by representing investors trying to recover losses in securities litigation, or from the ranks of fund fiduciaries who invest other people’s money.
The law specifies no qualifications for commissioner. It requires only that no more than three of the five commissioners come from the same political party.
It also specifies no constituencies — from investors to corporate issuers — be represented.
So the only certain attribute about President Bush’s nominee is that he or she will not be a Republican — because three of the four remaining commissioners are Republican.
It’s important for the next nominee to be a thoughtful advocate for investors, one who supports strong enforcement of securities laws and the preservation and potentially enhancement of shareholder and other investor rights. He or she will have to face up to pressures from interest groups and, in some cases, even former firms.
Institutional investors, including fiduciary investors, deal with the implications of SEC regulation every day, including trading, investment and corporate governance practices.
Plaintiffs’ lawyers bring the credentials of investor protection. They know problems with NASD arbitrage and self-regulatory oversight. They have represented investors in their grievances.
Academics and economists might bring valuable knowledge, too, although their practical experience might vary. Academics, however, broke investigations dealing with Nasdaq pricing and options backdating. But these academics are unlikely to be nominated.
Of the five current commissioners, four of them, including Mr. Campos, have typical SEC commissioner backgrounds — working for corporate and securities sides, whether at law firms or investment banks. One was a congressional aide.
The SEC faces big issues, especially on proposals for proxy access for shareholders to nominate directors using corporate proxy materials.
The law shouldn’t box the president in by specifying qualifications in detail. But investors ought to provide guidance to the president and Senate on the type of representative the next commissioner should be.
