A tremor went through the Opacity Protection Team today when Senator Elizabeth Warren called for ending its capture of the process by which the SEC sets disclosure requirements.

Ok, she didn’t specifically call out the Opacity Protection Team.  But she did say

End corporate capture of rulemaking.

Start by empowering beleaguered agencies to stand up to well-heeled corporate giants that don’t want to follow any rules.

When someone lies to a court, we call it “perjury.”  But, too often, when companies lie to regulatory agencies during the rulemaking process, they just call it “analysis”-and no one bats an eye.  Meanwhile, Donald Trump’s EPA has the gall to try to block objective, high quality science from being considered in the rulemaking process.

Enough of this garbage.  Prosecute companies that knowingly mislead government agencies.  And stop the practice of companies paying for sham “studies” designed to derail the rulemaking process.  Instead, let’s force anyone who submits a study to a regulatory agency to disclose who’s paying for it and who’s editing it. If studies with financial and editorial conflicts don’t meet minimal methodological standards, throw them out before they disrupt the process.

While the Institute for Financial Transparency applauds Senator Warren’s call to end the corporate capture of the rule making process, the Opacity Protection Team is already several steps ahead of her.

Specifically, the Opacity Protection Team uses trade groups it controls to limit disclosure.

A classic example of this was the American Securitization Forum.  It was set up by Wall Street.  When it came to disclosure requirements for structured finance securities, it pushed Wall Street’s agenda over the agenda of the investors who belonged to the trade group.  It was so flagrant about this, some investors quit in protest.

Unfortunately, the SEC gave tremendous credibility to what ASF had to say.  The SEC view was it “speaks for the industry” since it is an “industry-wide” body that includes both Wall Street and investors.

The Opacity Protection Team also recognizes investors seldom advocate for disclosure.

My experience with the process by which disclosure requirements are set has shown (and studies have confirmed) for every response calling for greater disclosure there are 20 responses calling for less disclosure.  Never mind the 20 responses are all coordinated (my experience is they work off the same talking points and frequently include identical paragraphs).  The SEC doesn’t lump them together and treat them as a “single” response.  Instead, it gives them greater weight than the response calling for more disclosure.

While Senator Warren is pursuing a legislative solution for ending the Opacity Protection Team’s capture of the process by which disclosure requirements are set, the Transparency Label Initiative has taken a different approach.

The Initiative takes advantage of the fact the SEC sets minimum disclosure requirements and there is nothing preventing disclosure above and beyond the minimum.

Rather than fight with the Opacity Protection Team over the minimum disclosure requirements, the Initiative looks at the question of what information does an investor need if they are going to be able to know what they own.  If an investment provides this disclosure, it is awarded a label.  If not, it doesn’t receive a label.

The Initiative effectively drains the SEC portion of the DC swamp without legislation.