Fact File: Annual Budget of the U.S. Securities and Exchange Commission

Categories: Corporate Finance, Economics, Equity Investments, Financial Statement Analysis, Fixed Income, Portfolio Management, Quantitative Methods, Standards, Ethics & Regulations (SER)
U.S. Securities and Exchange Commission headquarters in Washington, D.C.

The U.S. Securities and Exchange Commission, which is charged with ensuring the proper functioning of U.S. financial markets worth at minimum $18,929 billion in market capitalization (the NYSE, NASDAQ, and AMEX combined), has a paltry annual budget of just $1.321 billion.

Why paltry?

To put this in perspective:

  • The SEC budget is 99.99% smaller than the markets it is supposed to protect.
  • The SEC budget is equal to $1 for every $14,329 that it is charged with protecting.
  • The SEC’s recent additional budgetary request amounts to an additional $0.13 for every $1,000,000 it supervises.

To further contextualize the SEC’s funding, we’ve compared its budget to various other line-items in the U.S. federal budget.

  1. The SEC budget of $1.321 billion versus U.S. budget line item for:
    • “Agriculture, forestry, fishing and hunting: surveys, investigations, and research” — $1.1 billion, or 16.7% smaller than the SEC budget.
    • “Recreational and sporting services” — $4.2 billion, or 217.9% larger than the SEC budget.
    • “Fish and wildlife service” — $1.6 billion, or 21.1% larger than the SEC budget.
    • “Marshalls service” — $1.2 billion or 9.2% smaller than the SEC budget.
    • “General property and records management” — $2.3 billion, or 74.1% larger than the SEC budget.
  2. The SEC budget of $1.321 billion is 0.03% of the entire 2013 U.S. budget of $3.803 trillion.
  3. The SEC budget is $1 for every $2,878.88 spent on other programs.
  4. The SEC budget of $1.321 billion versus key 2011 financials for just one major bank, Citigroup:
    • Bank profits of $11.1 billion, equivalent to 7.4 more SECs.
    • Total assets of $1,873.9 billion, equivalent to 1,417.5 more SECs.
    • Net working capital of $33.8 billion, equivalent to 24.6 more SECs.
    • Citi’s vague net working capital line-item “other, net” is $9.3 billion, equivalent to 6.0 more SECs.
    • The closest line-item to the SEC budget in Citi’s financial statements is “proceeds from sales of premises and equipment, subsidiaries and affiliates, and repossessed assets,” which was $1.323 billion. Put another way, Citigroup disposed of assets last year that were worth more than the SEC’s entire budget.
    • This is just one major bank in the United States and represents just 12.7% of the total assets of the United States’ largest 50 banks at $14.8 trillion
  5. The SEC budget of $1.321 billion versus just three investment professionals that the market regulator will ultimately be charged with overseeing under the Dodd-Frank financial reform legislation:
    • Ray Dalio of Bridgewater Associates earned $3.9 billion in 2011, equivalent to 1.9 more SECs.
    • Carl Icahn of Icahn Capital Management earned $2.5 billion, equivalent to 89% of another SEC.
    • James Simons of Renaissance Technologies earned $2.0 billion, equivalent to 51.4% of another SEC.
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10 comments on “Fact File: Annual Budget of the U.S. Securities and Exchange Commission

  1. This analysis is incomplete because the SEC is not solely responsible.They share responsibility with the states,finra and the exchanges and they could shift more of their responsibility downward.by eg letting finra do all bd cases and increasing the states share of ia oversight.But more importantly it argues for an experiment in self funding for the Commission.

    • Hello and thank you for your comment. I am certain that if we included the other regulators, OCC, state regulatory bodies and a quasi-regulator like FINRA that the result would still be an absurdly low proportion of regulator financial support relative to just one major U.S. banking institutions profits, say Citi’s $11.1 billion.

      Regarding the SEC becoming self-funding, that is an interesting issue and one that I have carefully considered for many years. But I still cannot get conviction that it makes sense to financially incentivize a watchdog.

      Thanks for your comment and keep them coming!

      Jason

      • Saimum said:

        Hey Jason,

        A great analysis indeed!

        I seriously had no idea that even the US SEC runs on such a relatively tiny budget! I’m writing from Bangladesh and I happened to be working for the Bangladesh SEC for around 3 months. At the end of the third month, when my tenure with it was over, I was actually overwhelmed! The fact that our SEC runs on such a stringent budget was motivation enough to leave the organization with peace!

        However, to my opinion, self-funding for a watchdog (especially for the financial markets) is prone to creation of unwanted issues which might, in the long run, hamper the prime focus of the Commission itself.

        Again, great analysis. Thanks for sharing :).

        Cheers
        Saimum

  2. Fabio Braga said:

    Dear Jason,
    Thank you for discussing a very compelling issue. However, I disagree with your article in terms of how “facts” are presented (rather than whether the SEC is underfunded). Let me disclose immediately that I work for a European financial watchdog (UK FSA).

    I don’t know whether SEC’s budget is appropriate for ensuring that the Commission is able to meet its statutory objectives. You may be perfectly right and the SEC could be underfunded, however your numbers are of little help, if any to understand the issue. On the contrary, your list of “facts” is confusing and the article is well, well below the minimum acceptable standard of quality I expect from the organization I’m very happy to belong to.

    First of all, you rather clumsily put together fancy numbers without giving any useful benchmark. What is an appropriate number for some of the ratios you provide above?

    Secondly, as well noted by one commenter above, the SEC is one of the many regulators and authorities that regulate and oversee some of the institutions and markets you list above (the SEC for example is not a prudential regulator for banks). Once you have provided a sensible benchmark as discussed above, please put together all the numbers and include the budget of other regulators as appropriate. You simply, and with great confidence, assume that the consolidated budget would still be absurdly low.

    Thirdly, you could have done a cross country comparison and see whether the SEC is underfunded as compared to say the UK FSA, the French AMF, the Australian ASIC and others (accounting for the diversity in objectives and size/structure of their domestic markets).

    Lastly, I assume that while you “carefully considered the issue for many years”, you did not notice that some important market regulators are funded by the industry. Why is self-funding inappropriate? It may be but, as for the rest of the article, you don’t provide any explanation.

    Best regards
    Fabio Braga

    • Hello Fabio,

      Thank you for your feedback on the piece. The point of the piece was not to be a treatise on the subject of SEC under/over/just right funding, but a simple 500 word or so comparison of the SEC budget relative to other items.

      To dismiss the figures above you have to dismiss them on principle alone because the orders of magnitude of difference between the SEC budget relative to the size of the resources it is meant to safeguard are so great. For example, that the net working capital of one U.S. bank, and not its largest bank either, is the size of 24.6 SECs is meaningful. Even if we factor in the other regulatory authorities I know that their combined budgets are still going to be less than the net working capital of one bank. And that one bank is just one institution amongst 10,000 publicly traded companies in the United States.

      A stat that did not make the final cut is that the SEC’s computers take about two months to analyze all of the trades from just one trading day. This stat was revealed before the U.S. Congress by the SEC when it was describing its efforts at interpreting trading data from the “Flash Crash.”

      While the issue was not framed how you would prefer it to be framed, I still feel that there is compelling information here.

      Thanks, and with smiles!

      Jason A. Voss, CFA

  3. How do The facebook and JP Morgan situations apply to the resource deficiency-I would suggest that the firms involved need more internal supervision and that the regulators were not hindered by resources but perhaps a lack of aggressiveness with the big firms.

    • Hi Peter,

      Thanks for the comment. Asking for the financial system to self-regulate at this moment in its history seems a little odd given recent events starting at Bear Stearns’ collapse and moving forward to this moment. Can you argue compellingly that there has been an evolution in the quality of self-regulation and globally? Such evidence would make for an interesting read.

      Thanks, and with my usual smiles!

      Jason A. Voss, CFA

  4. Claude said:

    Hi Jason,

    I googled something about financial regulatory agencies and ended up on your interesting post. Surprisingly, there seems to be no serious treatment of the subject of regulator’s budgets, even in academic and professional journals. Am I wrong? Did I miss a analysis somewhere? Please let me know…

    Claude

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