(FLASH FRIDAY is a weekly content series looking at the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet, a Nomura company.)
Politics is encroaching on the U.S. Securities and Exchange Commission. Headcount is down. There are concerns about getting the job done and not being a drag on the functioning of markets.
A news report from today? Could be. But it was definitely the state of play 45 years ago.
“The Commission is already seeing certain subtle implications of that political climate which may make our political operation – and possibly the work of many practitioners – that much more difficult,” then-SEC Chairman Harold Williams told the Practicing Law Institute in March 1980. “The Commission’s staff has actually been reduced in size despite the growing activities in the financial community.”
“But, if its staff resources are not reasonably commensurate with its responsibilities, the Commission will experience its own back office problems,” Williams continued, in his remarks archived by the Securities and Exchange Commission Historical Society. “And, unfortunately, any ostensible savings in staff made in the interest of budgetary frugality will result in even higher costs and burdens to the private sector.”
Williams cited slower processing of corporate registration statements, a greater chance retail investors will be victims of fraud, and overall less efficient and more bureaucratic response times as likely results of a pared-back SEC.
In January 2025, Donald Trump took office vowing to slash the size of the federal government, and the SEC didn’t get an exemption. Total headcount at the Commission dropped by about 12% between January and May, Reuters reported, while divisions including investments and trading and markets lost between 15 percent and 19 percent.
In another similarity to the present day, Williams in 1980 cited “the increasing disparagement of government employees, including from the highest levels of government itself” as a “subtle and difficult to quantify” risk to the SEC’s work.
Will the reduction in force impair the work of the SEC? That remains to be seen. Some market participants and observers believe that the pre-2025 SEC was bloated and overactive, fat needed to be cut, and a leaner SEC will be a more effective regulator. But others share some of the concerns Harold Williams had way back in the fourth and final year of Jimmy Carter’s presidency, specifically around the departure of senior, experienced staff being a ‘brain drain’.
“One cannot assume that the staff will have the same level of expertise if its size is substantially reduced,” Columbia Law School professors wrote in a March 2025 blog post. Indeed, the sad truth is that ability and mobility go together, and those most likely to leave will be those whom private firms most want to attract.”
The authors, including the highly regarded John Coffee, expressed “growing concern” about the SEC’s future. “Although some with a strong ‘anti-regulatory’ point of view may welcome the SEC being decimated, the majority of experienced practitioners on both sides of the political aisle understand that the SEC adds value to our capital market system and that its staff does significantly improve the quality of disclosure.”
The Columbia profs stated broadly, “The end result might be a shell of its former self, as the SEC becomes an agency with little power, capacity, or independent judgement.”
