SEC Rulemaking Process: How It Works

⚖️ SEC Rulemaking Process: How It Works

From Concept to Regulation – A Step-by-Step Breakdown

The U.S. Securities and Exchange Commission (SEC) plays a key role in maintaining fair and efficient markets through rulemaking. Whether you’re preparing for the Series 24, Series 65, or a compliance role, understanding how the SEC creates and enforces rules is essential.

🧭 Step-by-Step: How the SEC Makes Rules

1️⃣ Concept Development

• Triggered by market changes, Congressional mandates, public petitions, or internal reviews.
• Staff may research and analyze industry issues to define the regulatory need.

2️⃣ Proposal Drafting

• SEC staff prepares a proposed rule, including legal language, economic analysis, and rationale.
• This draft addresses potential impact, alternatives, and enforcement concerns.

3️⃣ Commission Approval to Publish

• The five-member Commission votes on whether to release the proposed rule for public comment.
• A majority vote is needed to proceed.

4️⃣ Federal Register Publication

• The proposal is published in the Federal Register and becomes open for public comment.
• The typical comment period is 30–90 days.

5️⃣ Public Comment and Feedback

• Market participants, firms, investors, and advocacy groups submit written comments.
• The SEC reviews all feedback and may revise the proposal based on stakeholder input.

6️⃣ Final Rule Adoption

• After revisions, the final rule is drafted and again voted on by the Commission.
• Upon approval, it is published in the Federal Register with an effective date.

7️⃣ Implementation and Enforcement

• The SEC sets an effective date and often allows time for market participants to comply.
• The rule becomes enforceable through exams, reporting, and regulatory action.

📜 Example: Regulation Best Interest (Reg BI)

• Proposed: June 2018
• Public Comment Period: ~90 days
• Final Rule Adopted: June 2019
• Effective Date: June 30, 2020
  This rule redefined the standard of conduct for broker-dealers when recommending securities to retail customers.

🔍 Who Influences Rulemaking?

• Congress: May direct the SEC to write rules under new legislation (e.g., Dodd-Frank Act)
• Public and Industry: Can submit petitions or comments to shape the final rule
• Other Regulators: Like FINRA, CFTC, and state regulators coordinate or provide feedback

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