| Federal agencies adopt rules to implement laws. Following the stock market crash in 1929, laws were passed to reform securities markets and to broaden the amount and accuracy of information to be made available to investors by issuers of securities. Those laws included the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940. The more recently enacted Sarbanes-Oxley Act of 2002 provided additional requirements for corporate governance and disclosure of information.
While legislation provided broad parameters for regulation of the securities industry, rules have been adopted by the Securities and Exchange Commission pursuant to the authority of the legislation to govern fairness and orderliness of securities markets and to require disclosure of information to investors. As applicable technologies and securities markets evolve, regulations of the Commission also are anticipated to evolve within the basic framework set by legislation covering the securities industry.
The Commission follows the normal rulemaking process for federal regulatory agencies by receiving rule proposals and then adopting final rules. The Commission also has a procedure by which it will provide a "Concept Release" even before a specific rule proposal is made.
The Concept Release process is used by the Commission when it is presented with an issue that is so complex or unique that the question whether any rule at all should be considered must first be determined. The Concept Release issued by the Commission will describe the topic of interest, the Commission's concerns, possible solutions to any perceived problem, and questions on which public comment is sought by the Commission.
The topics covered by Concept Releases tend to be broad and complex. For example, the Commission at the end of 2004 issued a Concept Release concerning self-regulatory organizations such as the national stock exchanges and sought comment on potential conflicts of interest of such organizations, on possible ways to improve the regulatory functions of such organizations, and on available regulatory alternatives to such organizations.
Rule proposals are drafted by Commission staff if the Commission determines that there is a need for regulation of a specific matter. Unlike a Concept Release that is intended to cover a topic broadly, a proposed rule is designed to have specific objectives and specific means to meet those objectives. However, while a proposed rule must be specific as to objective and means, it may be broad or narrow concerning the scope of what markets or market participants are affected. For example, rule proposals in late 2004 concerned topics as broad as "Securities Offering Reform" and as narrow as "Definition of an Eligible Portfolio Company Under the Investment Company Act of 1940."
If the Commission approves the rule proposal drafted by staff, public comment is sought on the proposal for 30 to 60 days generally. During and following the public comment period, the Commission staff drafts a final rule. Final rules become effective upon adoption by the Commission, or in the case of certain major rules, upon Congressional review and assent to the rule. Final rules normally contain an effective date and then a compliance date by which requirements of the rule must be met by those subject to the rule. Copyright 2010 LexisNexis, a division of Reed Elsevier Inc. |