Ownership, Governance and US Securities Regulation: The Case for a 'Learning Regulator'

I examine whether the Securities and Exchange Commission (SEC) in the US is a learning organization (i.e., one that is capable of learning and adaptation to the dynamic nature of the securities markets – the subject of the SEC’s regulatory oversight). Using the treatment of public corporate ownership in the proxy rules under the Securities and Exchange Act of 1934, I argue that the SEC is yet to become a learning regulator given that it has fallen short in learning of a distortion inserted into the regulatory framework in 1934, the result of which is the embedding of the distortion in the regulatory framework and its amplification via different policy initiatives. The consequence of imbalance between market realities and regulation is regulatory systemic risk.