Grassley: SEC Agrees to Conduct More Aggressive Oversight of Stock Exchanges
WASHINGTON – Senator Chuck Grassley of Iowa today said the Securities and Exchange Commission (SEC) has committed to reviewing the internal audits andinvestigations of self-regulatory organizations such as the New York Stock Exchange.Grassley had asked in December that the Chairman of the SEC to remedy thecommission’s failure to tap investigative resources provided by self-regulatoryorganizations by coming up with a plan for the commission to consider such informationas part of its work to safeguard the integrity of U.S. markets.
“It took way too long, but now maybe the SEC is finally getting serious about itsduty to oversee self-regulatory organizations,” Grassley said. “Getting their internalaudits is the obvious first step to knowing where the problems are. Yet, the SEC turned ablind eye, even three years after the GAO told them to take a look.”
Grassley made his appeal following the completion of an independent audit thatsaid the securities industry reports information about suspicious transactions but SECcomputer systems can’t search the data.
Here is a copy of the text of Grassley’s December letter. The letter from SECChairman Christopher Cox to Grassley is posted with this news release atthe Finance Committee website.
December 13, 2007
The Honorable Christopher Cox
U.S. Securities and Exchange Commission
100 F Street, NEWashington, D.C. 20549
Dear Chairman Cox:
Last year, I requested that the Government Accountability Office (GAO) conductreviews of the operations of the Securities and Exchange Commission (SEC). I recentlyreceived the second of two reports, GAO-08-33, entitled "Securities and ExchangeCommission: Opportunities Exist to Improve Oversight of Self-Regulatory Organizations(SROs)." Reliance on SROs, such as the major stock exchanges, to police their memberscan work effectively only if the operations of the SROs are open and transparent.Therefore, I was disturbed to learn that the SEC does not obtain copies of internal auditsand investigations conducted by SROs.
According to the GAO, it recommended four years ago that the SEC routinely usesuch internal audits and investigations to plan and conduct inspections of SROs. TheSEC did not implement that recommendation. Recent SEC guidance calls for SROs tomerely allow "on-site" access to internal documents during SEC inspections. This is notan adequate substitute for actually implementing the GAO recommendation by obtainingcopies and reviewing the documents to inform the planning of SRO inspections.
I urge you to ensure that SEC staff obtain and review internal SRO audit reportson a routine basis. While the SEC told GAO that it intends to study and consider howreliable such reports may be, that does not go far enough toward implementing GAO'srecommendation from four years ago. If the SEC had begun routinely obtaining thesereports four years ago, it would already have an idea of how reliable they are. It shouldnot take this long to do something so basic. Given that SROs are entrusted with directregulation of the securities industry, there is no excuse for them being anything less thancompletely transparent to the SEC.
I would appreciate an explanation of why the SEC has been so slow to act on thismatter and a description of your plans for ensuring that the SEC begins to routinelyobtain and review internal SRO audits and investigations.
Charles E. Grassley
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