SEC Commissioner Glassman offers parting remarks.

In a July 6 speech, Observations of an Economist Commissioner on Leaving the SEC, former U.S. Securities and Exchange Commission (SEC) Commissioner Cynthia A. Glassman told a roomful of economists at the National Economists Club in Washington, D.C., that "being an economist in a commission full of lawyers was a defining experience for me, and you in this group will understand what I mean."

Referencing a speech she gave when she joined the SEC in 2002, she talked about her philosophy of letting the markets work freely, where possible, and that a "free-market philosophy requires a free flow of information. Our financial disclosure system should be designed--or redesigned--to reflect economic reality," she said. Also, in 2002, she talked about "the use of incentives to achieve appropriate behavior, on both the individual and corporate level, and the need for greater emphasis on investor education."

Over her four years, Glassman says, she tried to instill more economic analysis into the commission's rulemaking and enforcement initiatives, and to show the value of empirical data in framing rules designed to protect investors and maintain the integrity of the markets in the most efficient, effective way. She indicated that the commission and staff--predominantly lawyers--"have not always been as receptive to this approach as I would like." However, she felt she'd made some "inroads that future economist commissioners and our own Office of Economic Analysis (OEA) will be in a position to build on."

Looking back on her experience, Glassman says most of the beliefs she had when she started the job have been confirmed. She gave four examples:

1. The market can be a force for good, and rules work best when they harness the market's competitive forces and align those forces with with investors' interests;

2. The regulator's role should be to set the standards, let markets and market participants compete on the basis of those standards and take enforcement action when the standards are not met, commensurate with the violations;

3. Rules should be clear and objective and attempt to accomplish their goals in a cost-effective manner, with minimum disruption to markets; and

4. The SEC needs to improve timeliness. Too many of the commission's projects take too long. While rulemaking, enforcement actions, examinations, inspections and processing of exemptive applications are working their way through the commission, peoples' lives and businesses are at stake.

She noted that one early goal of former Chairman Harvey Pitt and herself was "to undertake a comprehensive review of the structure of the securities laws and regulations to ensure that an approach conceived in the 1930s is still relevant and efficient today." It's interesting to note that both Glassman and Pitt hold a similar belief about the lawyer-heavy SEC staff (see Editor's Page on page 8) and question the balance of law versus economic analysis of rules and regulations.

On May 18, Kathleen L. Casey was appointed by President George W. Bush to be an SEC commissioner, replacing Glassman. Her term expires in 2011.