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ETF Investing

How to Modernize the SEC

The Securities and Exchange Commission (SEC) is in serious need of reform. The agency isn’t fit to regulate the modern era of securities.

You want proof? Consider exchange-traded funds (ETFs).

The first ETF came on the market in 1993. There were more than 100 ETFs on the market nine years later and around 1,000 by 2009. Now there are more than 5,000 ETFs. ETF assets reached $2.1 trillion in 2015, according to Vanguard. And last week, the SEC finally issued a set of regulations just for ETFs.

It took 26 years for the SEC to get around to regulating ETFs as a unique asset class.

“ETFs have been around long enough that regulators realize they need their own set of rules,” J. Garrett Stevens, CEO of Exchange Traded Concepts, told MarketWatch.

No kidding. It took regulators 26 years to figure out they needed to regulate one of the most popular investment vehicles on the market today.

It’s no wonder they’ve shown little interest in approving a bitcoin ETF. Or even regulating crypto. The requisite 26 years haven’t passed.

At this rate, the SEC isn’t going to even consider regulating bitcoin until 2034. That is unacceptable. So is waiting 26 years to issue ETF-specific regulations. It’s a dereliction of duty.

The SEC needs to be modernized in order to adequately deal with new technologies, ideas and concepts. Fintech is changing the way we do business. So is crypto. And neither can afford to sit around twiddling their thumbs while the SEC takes 26 years to make a decision.

There are two ways to reform the process. The first is regularly bringing in new blood at the SEC. The younger the agency gets, the more willing it’ll be to tackle the complex issues of our day – like bitcoin. A generation of regulators and staffers who grew up on the internet is more likely to yield common-sense regulations than those who did not.

The second way is to look at how states do it. For new technology, many states create a regulatory “sandbox.” It’s a way for regulators to rapidly develop and test new types of regulations to see which ones work best.

The best solution is probably a combination of the younger blood and the regulatory sandbox.

But no matter what, as investors, we need to start pushing for SEC reform. We don’t have the time or the patience to wait 26 years to see what happens next.


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