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Aguilar Reflects on Tenure, Looks to the Future

In a recent speech, SEC Commissioner Luis Aguilar reflected on his tenure and offered some predictions for the future. Aguilar noted that he became a commissioner on July 31, 2008, weeks before Lehman Brothers filed for bankruptcy. The crisis, he argued, made “abundantly clear that years of lax attitudes, deregulation, and complacency about the virtues of strong regulation contributed significantly to the financial crisis.” As a result of the crisis and increased powers given under Dodd-Frank, Aguilar stated that in his time at the Commission, “a refocused SEC has tackled head-on a wide variety of complex issues.”

Looking forward, Aguilar noted that the SEC is “struggling” to keep pace with market changes that have taken the average speed of execution for small, immediately executable orders on NYSE from 10.1 seconds to half a second or less. Aguilar pointed to the SEC’s Equity Market Structure Advisory Committee and ongoing comprehensive review of core market structure policies.

According to Aguilar, the lack of data available to regulators is made more acute by the fast-changing markets.  For example, he noted that it took SEC and CFTC staff more than four months to obtain and analyze the data from the May 2010 Flash Crash. However, Aguilar noted the SEC’s advancements in data analytics, including MIDAS, CAT, and systems to analyze incoming tips and suspicious returns filed by hedge funds and advisory firms. Aguilar also highlighted the 2010 rule changes that required money funds to file Form N-MFP monthly. The new data is important because “it allows the Commission to put its finger on the pulse of these funds, and better monitor their activities.” In order to be able to keep pace and analyze the ever-changing market, he argues, Congress must provide “sufficient and reliable funding to use cutting-edge technologies.” To be an effective regulator, Aguilar states that the SEC must “obtain and efficiently analyze full, accurate, and timely data as to market activity and all the companies we oversee.”

Advances in technology have also meant that the global markets have grown and become more interconnected, according to Aguilar. As a result, the SEC must “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.” Aguilar suggested that the SEC should increase its coordination with international counterparts, specifically in the area of combatting cross-border fraud. He lamented difficulties in working with these counterparts to enforce judgments, gather information, and conduct inspections. As a result of the challenges, Aguilar stated that the SEC “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.”