“Interim Final Temporary Rule”?
posted by Lawrence Cunningham
What should regulated persons make of a federal agency describing a binding regulation as an “interim final temporary rule”? That’s the self-titling the Securities and Exchange Commission gives to two (here and here) of its latest in a series of controversial regulations concerning short selling of securities (selling securities one doesn’t own at a current price to be delivered in the future after buying them at an expected lower price).
The strange nomenclature may be due to difficulties the SEC has faced trying to create a sensible policy on short selling as it struggles with a role to play in addressing the credit crisis. It settled on restricting short selling in the name of trying to prop up prices of equity securities. It adopted emergency measures, and amended and expanded these then allowed them to lapse and is now reviving its effort to play a role. Everything it has done has been subject to criticism and second-guessing, with some evidence indicating that its efforts have exacerbated equity market performance rather than helped.
The SEC now adopts these two “interim final temporary rules,” trying to micro-regulate short selling with greater precision. Separately, it also adopted more traditional forms of regulation more in keeping with its longstanding regulatory philosophy, establishing anti-fraud principles.
Atop the SEC’s difficulties in searching for a policy on short sales, of course, the agency has been hammered on many other fronts. Most embarrassing is rebuke for its oversight of Bear Stearns and other investment banking firms. Its Chair admitted the agency’s failure in this job and its authority on that subject now has evaporated (Bear, Merrill Lynch and Lehman Brothers are no longer independent investment banking firms and Goldman Sachs and Morgan Stanley are now under Federal Reserve supervision as bank holding companies).
Then there is the SEC’s apparent abandonment of its erstwhile enthusiasm for international accounting standards. It is also mired in a Congressionally mandated study to figure out what role accounting has played in the current credit crisis.
For all that, earlier this week the agency compiled a list of its efforts to play a role in resolving that crisis. The list, in the form of a boast, prompted Professor Barbara Black to ask whether the agency may be feeling defensive. Probably it is. Using terminology like interim final temporary rule may be a symptom of the agency’s unease.