One person is now a quorum at the SEC

Terry Pratchett's fictional city of Ankh-Morpork is led by Lord Vetinari, who follows a unique approach to democracy: One Man, One Vote; Vetinari is the Man and he has the Vote. The US Securities and Exchange Commission seems to be heading down a similar pathway.

Late last month SEC commissioner Hester Peirce abruptly announced that she was resigning from the US financial watchdog. Her last day was on Friday, and the only two remaining commissioners -- the Trump-appointed chair Paul Atkins and the Republican Mark Uyeda -- wasted little time in enshrining their ability to keep the agency under their control.

Here's a new rule that the SEC's remaining commissioners passed on Friday:

The Commission is modifying 17 CFR 200.41, which establishes the Commission's quorum requirement. Three commissioners will continue to constitute a quorum of the Commission, with two important exceptions. First, consistent with the current rule, if the number of commissioners in office is two or one, that number is sufficient for a quorum. Second, if the number of commissioners in office minus the number disqualified from consideration with respect to a matter is two or one, then that number of commissioners constitutes a quorum for purposes of that matter.

Some background might be in order. The SEC is supposed to be led by a five-person commission. These commissioners are nominated by the reigning president, approved by the Senate, and appointed in a staggered way to five-year terms to ensure that the agency's main rulemaking body is full most of the time. No more than three commissioners may belong to the same party to ensure some bipartisanship, but the president gets to choose one to be the commission's chair.

At least, that's how things used to work.

The first Trump administration did actually fill three Democrat commissioner vacancies, but the second Trump administration has shown zero indication that it wants to adhere to previous norms. It has let Democrat commissioners Jaime Lizárraga and then Caroline Crenshaw leave without naming any replacements, leaving it with no minority commissioners for the first time ever, aside from a six-month window in 2008.

This matters less for rulemaking -- the majority party usually controls enough commissioners to get its will anyway -- than it does for transparency and the terms of the financial-regulatory debate. The minority commissioners can and often do use their ability to publicly dissent against SEC rules to help shape the discourse on financial regulation.

In fact, Peirce was a particularly effective SEC commissioner under the Biden-nominated chair Gary Gensler because of her often thoughtful but punchy dissents. Indeed, Alphaville is surprised that someone who clearly valued the role of minority commissioner so highly said so little about the end of dissent at the SEC after Crenshaw had to leave at the start of this year.

But now that Peirce is herself out of the agency, Atkins and Uyeda had to hastily revamp the SEC's quorum rules to ensure that her swift exit won't affect their ability to have their way.

The Securities and Exchange Act of 1934 doesn't actually set out any quorum requirement, but in 1995 the Commission formalised the practice that it took three commissioners to vote on a new rule. It also said that if there happened to be fewer than three commissioners in office at the time then two commissioners could still form a quorum.

However, with now just two commissioners around and it being entirely possible that one of them might have to recuse themselves from an issue (or be otherwise MIA), just one is now enough to pass a formal rule that applies to America's vast multitrillion-dollar securities markets.

And conveniently enough, the SEC says that since this new "amendment" to its own rules relates only to the SEC's governance, it doesn't count as a "substantive rule" -- and no opportunity for public comment is therefore required.

The new approach is "designed to promote flexibility and finality of agency rulemaking", according to the SEC's statement.

In prior years, the Commission has occasionally been in the position of having fewer than three members and believes it prudent to adapt its quorum rule to further accommodate that contingency. Moreover, the Commission has found that situations often arise in which one or more Commissioners have disqualified themselves or are otherwise disqualified from participating in a matter. When such situations arise, it is important that the Commission be able to continue to conduct business. Accordingly, the Commission is amending the quorum rule to specify that, in a situation in which only one Commissioner is able to participate in a matter because all other Commissioners currently in office are disqualified from participating in that matter, the remaining member would constitute a quorum for that particular matter.

It's a pretty clear indication that the SEC doesn't expect any exiting commissioners to be replaced any time soon. But stepping back, this is all very much in keeping with the general vibe of the Atkins SEC, which seems proud of how much it has shrunk, how little action it has taken and how friendly to the financial industry it is.

As Crenshaw warned in her last speech before leaving the SEC at the start of the year: "The darkest depths of winter still lie ahead for America's capital markets."

Further reading:

-- The giant void of nothingness where US financial regulation used to sit (FTAV)