SEC's Director of Trading & Markets Defends the CSE Program

Erik R. Sirri, the departing Director of the SEC's Division of Trading and Markets made a speech on April 9, 2009 at the National Economists Club on Securities Markets and Regulatory Reform, in which he defended the SEC's much-criticized actions in the Consolidated Supervised Entity (CSE) Program.  As he stated:

Today, I want to discuss a Commission action that I believe has been unfairly characterized as being a major contributor to the current crisis. I am referring to the Commission's 2004 rule amendments to the broker-dealer net capital rule that established the consolidated supervised entity (CSE) program. Since August 2008, commenters in the press and elsewhere have suggested that the 2004 amendments removed a leverage restriction that had prevented the firms from taking on debt that exceeded more than twelve times their capital and, as a consequence, the Commission allowed these firms to increase their debt-to-capital ratios to unsafe levels well-above 12-to-1, indeed to 33-to-1 as some have suggested. These commenters point to the 2004 amendments as a significant factor leading to the demise of Bear Stearns. While this theme has been repeated often in the press and elsewhere, it lacks foundation in fact.