Common Cents

Proxy Lead

Ralph Murphy

(8/2016) Market turmoil and business solvency as well as investor return are the concern of the private and public sectors in almost every capitalist economy. Business sales fluctuate based on consumer trends and its ability to meet them as do the corporation’s value on listed exchanges. Stock sales do not necessarily reflect production earnings, and government oversight has turned to market manipulation in major exchanges. It has been lost in the past decade because of the actions of clever, private sector manipulators who have gained control of the public reins of power.

The Securities and Exchange Act of 1934 was part of President Franklin D. Roosevelt’s New Deal effort to restore investor confidence in stock exchanges and other capital markets in the Great Depression era. The law created the Securities and Exchange Commission (SEC) which sought to "regulate sales of securities in secondary markets", which are open to public investors." A three-track mission of protecting investors, maintaining fair and orderly markets and facilitating capital formation." It replaced the Federal Trade Commission's (FTC) often ineffective role as well as individual state oversight that couldn't deal legally across state borders.

SEC interests were focused on the viability or health of the businesses listed on major exchanges, but again the companies can be strong and their stock value low and vice versa. But, the business's strength really isn't a government responsibility. While problematic during initial probes, oversight became threatening as it evolved. It included "required management and decision analysis be provided" and even that it be posted publicly. The issues required conventional earning statements, but subsequent to that- even corporate working data had to be offered in an attempt to "level the playing field". That amounted to leveling business growth strategy and with the technology changes of the computer era it was posted to the 1994 EDGAR or Electronic Data Gathering Analysis and Retrieval System for rapid review and use.

The SEC has five divisions that are broadly tasked with the filing disclosure, but now linked to routine savings banks or demand deposits, as well. Also an analytic wing was created to assess consumer and producer trends in listed markets. The real trouble appears to have started in 2007 when the Trade and Markets division spun off both regulatory and enforcement authority to the newly created private concern known as FINRA or Financial and Regulatory Authority. "Most enforcement and rule making authority (associated with the SEC) were given to FINRA". It is based in Washington, but has close ties to New York.

FINRA now "regulates member (all listed as major exchanges) brokering firms and exchanges." It also licenses and administers firms on the markets, writes rules to govern their behavior, examines them for regulation compliance and disciplines registered corporate heads and member firms to comply with federal security laws and FINRA rules and regulations." It is a private business, but it can task the Justice Department to enforce their rules as well as access corporate data and can use it as they wish under SEC sanction.

The Board of Governors of FINRA is drawn mostly from the private sector. It includes FINRA's CEO as well as the New York Stock Exchange (Regulatory) CEO, 11 public governors and 10 private sector governors representing listed concerns. They can easily access accounts as to what remains of their private sector competition. SEC and FINRA have a Treasury link, that is making rules consistent with legal concerns. They can then exploit, and are almost completely self enforcing. With such power and access, it does appear they can send stock markets to almost any level they desire. They also have access to the corporate data involving a corporation’s production strategies. Data that may have very little to do with the stock exchanges. They likely influence foreign exchanges as well.

Stocks are always a "gamble" and have never been government insured in America at the federal level. The SEC has indirectly "leveled the playing field" as to competition by almost completely giving control of those markets to FINRA and their governors. Bonds or conventional bank loans are a more stable income source for the private businesses that really need external funding. Equity markets are just shy of being controlled casinos as they have evolved since FINRA was created.

If the governing authorities are serious about disciplining the markets they should go back to the FTC charter that attempted to "protect consumers against deceptive acts or practices in competition". This includes advertising irregularities and marketing issues that are now tied to "telecommunication firms, privacy and identity protection." Even the FTC appears to have taken on a manipulative role as they have strayed from a very doable mandate to others that take a "hands on" role in corporate earnings and management issues.

Neither the SEC nor its enforcement affiliates- including the Justice Department and other Executive bodies- should be tasked by overtly private sector interests they were created to regulate. They have permitted market and business penetration with information and financial losses being the result. FINRA has to be neutralized as well. Any governing oversight that drifts from FTC propriety concerns to actual market manipulation will continue to serve a select few and become potentially injurious to many.

Ralph Murphy is a former member of the CIA Headquarters Staff in Langley, VA.