R48521 — Capital Markets and Securities Regulation: Overview and Policy Issues

Capital markets are where securities (e.g., stocks, bonds, digital asset securities, and shares of investment funds) are issued and traded. As a main segment of the financial system, capital markets provide the largest sources of financing for U.S. nonfinancial companies. Securities issuers, intermediaries, and investors are all active participants in capital markets. The U.S. capital markets measure over $100 trillion in size. The Securities and Exchange Commission (SEC) is the primary regulator overseeing capital markets. The SEC has a three-part mission to facilitate capital formation, protect investors, and maintain fair, orderly, and efficient markets. Key capital markets components and their policy issues include: Securities offerings. The number of U.S.-listed public companies has declined by more than 40% since the mid-1990s. At the same time, private securities markets have become increasingly prominent. Policymakers are concerned about market transparency and equal access to investment growth and diversification opportunities in private securities markets. Nonbank financial intermediation (NBFI). Vulnerabilities affecting financial stability are present in capital markets, such as certain “runnable” behavior at money-like instruments, hedge fund leverage, interconnectedness between nonbanks and banks, data and transparency issues, liquidity mismatch at open-end funds, and concentration risk at market intermediaries. Investment management. The asset management industry collectively manages money for more than half of all U.S. households. In addition to the issues mentioned under NBFI discussions, observers raised concerns about private equity operations and performance, as well as industry-specific issues, including the compatibility of the industry’s profit maximization practices with certain public-service-oriented industries, such as health care, childcare, and housing. Securities trading and market structure. Market structure issues involve how securities are bought and sold and often relate to the SEC’s mission to maintain fair and orderly markets. Given the size and influence of the $29 trillion U.S. Treasury market, the increased market disruptions have led to development of methods to prevent or mitigate related risks. Digital assets. The SEC is the primary regulator for securities offers, sales, and investment activities, including those involving digital asset securities. It has established a new Crypto Task Force to solicit public input for potential rulemaking. Environmental, social, and governance (ESG). The emergence of ESG and anti-ESG trends are both prominent in ways that could affect policy preferences toward securities disclosure, proxy voting, and SEC operations, among other aspects. SEC agency operations and rulemaking. With the departure of former SEC chair Gensler, the SEC has been undergoing certain curtailment of its staff capacity and enforcement actions. It has also been revisiting the agency rulemaking process. Securities industry self-regulatory organizations (SROs). SROs set and enforce standards of conduct for their members, under the SEC oversight. The SRO model appears to present a tradeoff between its efficiency and information benefits and the need to ensure that the SROs are not abusing their delegated authority to benefit the industry at the expense of the public.

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