Financial Regulation: An Overview

Recently, President Obama unveiled his proposal for a new system of financial regulatory oversight. To many, the proposal may seem overdue. To others, it may be overreaching.

My opinion is that we need quality and constructive regulation rather than more or less regulation. It is important that we maintain an environment of productive economic growth and innovation while protecting the individual and markets from abusive practices. That is one of the reasons I have been pushing for the reinstatement of the Uptick Rule and for Federal Reserve oversight of leveraged exchange-traded funds.

Before we see where we're going, we should understand what the current banking and investment regulatory landscape looks like. It would be an understatement to say that the current regulatory system is convoluted and lacking in certain areas. Let's begin with a brief overview of the major financial regulatory agencies:

1. Securities and Exchange Commission: the SEC was created by the Securities Exchange Act of 1934 (commonly referred to as the "34 Act" by attorneys and investment professionals). The SEC is primarily responsible for overseeing and enforcing the Securities Act of 1933 (the "33 Act"), the Investment Company Act of 1940 (the "40 Act") and the Investment Advisors Act of 1940.

What is important to understand is that the SEC is responsible for investment and investment vehicles considered to be "securities." For the most part, securities are stocks, bonds and mutual funds. Products traded on the NYSE or CBOE are regulated by the SEC. The SEC chairwoman is Mary Schapiro, a former Commodities Future Trading Commission chairperson.