The SEC has been shorthanded since the departures of Commissioners Daniel M. Gallagher and Luis A. Aguilar. Their chairs have remained empty since President Obama’s nominations of Democrat Lisa Fairfax, a George Washington University law professor, and Hester Peirce, a Republican and an academic fellow from George Mason University, stalled in the Senate.
The three members of the Commission will dwindle to two after Chair Mary Jo White leaves the SEC in January. President-Elect Trump will be nominating three new members for confirmation by a friendly Senate, and under Senate rules, these nominations are not subject to a potential filibuster. However, the nominations will have to proceed through the often-plodding process of committee hearings and floor votes, which could leave the majority of SEC seats vacant for some time.
In the absence of new members, however, the SEC will not be powerless to act. Under rules adopted in 1995, when there are fewer than three serving SEC members, a quorum consists of the number of members then in office. Current Commissioners Kara M. Stein and Michael S. Piwowar would therefore constitute an operating quorum to conduct Commission business. While these two will likely not tackle any significant regulatory activity, they can continue the day-to-operations of the Commission, and act to deal with any crises in the markets.
Unlike many federal agencies, Congress did not establish a statutory quorum for the SEC. As a matter of informal practice, the Commission operated under a three-member quorum for years. Prior to 1995, however, that policy had never been formalized as a rule. In 1995, the SEC, which had only three members at that time, adopted a rule establishing a three-member quorum, with two major exceptions. The Commission recognized that “this rule may create difficulties when only three commissioners are in office, these difficulties are outweighed by the benefits of having all three commissioners deliberate and vote on matters.”
The two exceptions to the rule allow the SEC to function with fewer than three voting members in specific circumstances. As mentioned above, if the SEC has less than three members, then the number of serving commissioners constitutes a quorum. In theory, the SEC could do business with only one serving member.
In addition, if the SEC has three or more members, but after recusals and disqualifications, there are only two commissioners eligible to consider any measure, then those two are sufficient to constitute a quorum. This exception would not provide a quorum if after all recusals and disqualifications, there remained only one potential voting member.
The SEC addressed the different treatment of these two scenarios in the adopting release. The Commission stated that “it would be appropriate to preserve the flexibility necessary to take effective action in the event, however unlikely, that there would be a period with only one commissioner in office.” The agency stated, however, that it “does not believe it is necessary, at this time, to provide that one commissioner may constitute a quorum when disqualifications result in only one commissioner being available to deal with a particular matter.”
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