Nov. 24, 2023
Dear Secretary Countryman, Thank you for the opportunity to comment on the proposal to amend the Supplemental Standards of Ethical Conduct for Members and Employees of the Securities and Exchange Commission. I am a current SEC employee. Because I fear retaliation for voicing an opinion on an issue that the I understand the Chair is focused on, I am choosing to submit this comment anonymously. Though the comment period is closed, I know from experience that in practice the Commission always considers all comments it receives before a final Commission action, and I trust this comment will be considered as well. I write to urge the staff to reconsider the automated reporting requirement. As you know, many brokers do not have automated reporting capability. This means that mandating automated reporting, or having a complicated exception process, will have a direct impact on many staff, their spouses, and their children because it could affect whether those parties choose to work with that broker. It will also affect the brokers themselves, who will have less ability to compete for the business of the staff or their family members. This was not taken into account in the economic analysis. Additionally, while staff sometimes have the ability to choose which brokers they work with, this is not always the case. For example, many staff choose to save for college for their children in 529 plans. The 529 plans in Colorado, the District of Columbia, New York, and Pennsylvania (all locations where the Commission has offices) are run by Ascensus. I learned from a phone call to my 529 provider today that they are unable to offer electronic reporting for anywhere they are a recordkeeper. This means that if electronic reporting is mandated, staff in those jurisdictions will be unable to save for college. The proposal should have considered how many staff already use plans that do not offer electronic reporting, which is information that is very easy to obtain for the staff. They may have to make a few phone calls, but they know who are in these plans and this does not count as “not quantifiable,” no matter what DERA says. (It is possible that staff in ARO, BRO, CHRO, FWRO, LARO, MIRO, SFRO, SLRO will similarly be excluded but I do not know the details of their arrangements — again, seems like something the rule writing staff could get to the bottom of with a few phone calls, and should do so if they are serious about understanding the effect of the rule.) And it’s not just 529s, but all brokers. I use Vanguard for my non-529 investments and don’t directly have the same problem with small brokers that have been noted by several of my fellow staff members who commented on the proposal, but I know from my work that these are real concerns. Not all small brokers offer automatic electronic reporting, and requiring staff to use brokers who offer this capability is going to impact competition by boxing those “little guys” out of the market. Though this does not directly affect me, I want to echo the concerns that other staff have raised regarding financial sector funds. I understand the impetus to ban them, but this has an economic effect and the data is absolutely within the Commission’s possession because we all submit a certification of holdings annually (in addition to PTCS reports). DERA absolutely can and should quantify the effect of this change. It does not only affect agency employees, but their spouses, and children as well. In addition, it does or could affect the prices of financial sector assets in general. Given that the data is absolutely in the Commission’s possession, it is a risk not to quantify the effect. How could a decision not to quantify this information that all staff are required to report be squared with the ruling we just got on the Buybacks Rule? And finally, I would just like to note that choosing to propose such a sweeping rule with such a flimsy EA is a dangerous game. The statements that this only affects internal agency practice are incorrect. It affects our families and it affects the businesses we are able to work with and the companies we can invest in. Even if the Chair believes the union will not sue, all it takes is one staffer who knows which interest group wants to make some bad law against the Commission — and I suspect there are a few that would leap at the opportunity. If a staffer chooses to bring a lawsuit, he will know where the bodies are buried and will be able to write a complaint that would be absolute bait for a Fifth Circuit judge with an axe to grind (remember, FWRO is in Texas). A ruling striking down this rule in whole or in part would have programmatic effects, and the Chair would have to contend with them when defending rules he cares about a lot more, such as Equity Market Structure. Everyone I know on the staff is fully committed to avoiding even the appearance of impropriety in our work. For that reason, many of us are not opposed to a minor changes in the standards in general, but the way this is being implemented is far beyond anything that is reasonable. The Chair is already a multimillionaire, but most of us are not. We need the ability to save for college, and requiring automatic reporting will have the effect of preventing us from doing so. Requiring a complicated exemption process will not be a useful substitute because staff understandably do not want to ask for “special treatment.” The rule is on very shaky legal ground and, even if upheld, would lead to a staff exodus as most of us who can decamp for private employment would do so. Thank you for your attention to this matter. Best, SEC Staffer