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The Prevalence of “Shall” in Securities Market Regulatory Restrictions
In an earlier post, I documented that among the terms classified as regulatory restrictions in RegData 3.0 (e.g., namely “shall”, “must”…
In an earlier post, I documented that among the terms classified as regulatory restrictions in RegData 3.0 (e.g., namely “shall”, “must”, “may not”, “required” and “prohibited”), the use of “must” has now surpassed the use of “shall” in restrictions coming from the Office of the Comptroller of the Currency (OCC), the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC). In this post, I will break down the regulatory restrictions in Title 17 of the Code of Federal Regulations (CFR), which concerns securities market regulators, namely the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC).
Unlike the pattern observed for bank regulations, the use of “shall” still dominates.
Starting with the CFTC, you can see that “shall” remains the most prevalent regulatory restriction, even after the crisis. Moreover, the gap between “shall” and “must” appears to be growing, especially after 2011.
Turning to the SEC, you can see that similarly the most prevalent regulatory restriction is “shall.” Rather than “must,” the second most prevalent regulatory restriction is “required.” Also, in contrast, to the results for the CFTC, the gap between “shall” and both “required” and “must” has been declining. The declining gap began after 1996.
As I mentioned in the earlier post, current Federal Register guidelines suggest that “must” is the only term of obligation; as the entry suggests “shall imposes an obligation to act, but may be confused with prediction of future action.” So while the OCC, Federal Reserve and FDIC may have wanted to ensure greater compliance through the use of “must”, for the CFTC and the SEC that has not been the case. But a definitive explanation is beyond the scope of this post. Stay tuned for more.