Practical analysis for investment professionals
27 April 2012

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

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.

 

About the Author(s)
Jason Voss, CFA

Jason Voss, CFA, is a content director at CFA Institute, where he tirelessly focuses on improving the ability of investors to better serve end clients. He is the author of the Foreword Reviews Business Book of the Year Finalist, The Intuitive Investor. Jason also ran a successful blog titled What My Intuition Tells Me Now. Previously, Voss was a portfolio manager at Davis Selected Advisers, L.P., where he co-managed the Davis Appreciation and Income Fund. He holds a BA in economics and an MBA in finance and accounting from the University of Colorado.

Ethics Statement

My statement of ethics is very simple, really: I treat others as I would like to be treated. In my opinion, all systems of ethics distill to this simple statement. If you believe I have deviated from this standard, I would love to hear from you: jason.voss@cfainstitute.org

22 thoughts on “Fact File: Annual Budget of the U.S. Securities and Exchange Commission”

  1. pchepucavage says:

    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.

    1. 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

      1. Saimum says:

        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. Hello Saimum,

    Thank you for sharing your story and for your feedback – much appreciated.

    With smiles!

    Jason

  3. Fabio Braga says:

    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

    1. 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

  4. 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.

    1. 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

  5. herb garden says:

    I care for such info a lot.

  6. Claude says:

    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

  7. I think you mean 19 trillion as the total value of US markets, not billion. Good article.

    1. Hello ThisWeekInStupid,

      Yea, I’m pleased that you thought the article was good. That line item is $18,929 billion which is the same as $19 trillion.

      With smiles,

      Jason

  8. Tonyk says:

    Hi Jason,
    Enjoyed the article..would you have at idea what their budgets were 2013 & 2014 ??
    Tonyk.

  9. julian says:

    thank you for the info.

    1. Hello Julian,

      You are welcome! Was there a part that you found most useful?

      Yours, in service,

      Jason

      1. SEC budgets are complex because they are not the only ones regulating and much of their work can be done by the self regulators-who should be required to spend more money for more staff and technology.The states could also do more but there is a continuing turf battle that hides the necessary budgets.Why does the SEC have to do any bd cases when FINRA can do them?

        1. Hello Peter,

          Thank you for weighing in with your thoughts. Unclear from your comment was whether or not you believe the SEC’s budget is adequate.

          Yours, in service,

          Jason

          1. The budget could be adequate if work was shifted and sro’s doubled their budget.but is not adequate under the current configuration.

          2. Hi Peter,

            Thanks for clarifying your view, and for sharing it, too.

            Yours, in service,

            Jason

  10. Julie E. Dixon says:

    As one of the thousands of people affected by the actions of SEC, I feel I need to say that surely there is someone above the SEC. that they are answerable to, surely they cannot just take the law into their own hands without any responsibility for their actions.
    IE. Paypal contacted the SEC and claimed that Traffic Monsoon is a ponzi scheme, with no investigation by SEC they get a court to rule for receivers to be appointed. Receivers step in and freeze all of Charles Schofield’s assets, i.e. his business, his house, his bank a/c’s – he has to sleep on his parents couch, he lost custody of his son, and this is all through paypal telling lies to SEC and the customers who phoned paypal asking if their was enough money in paypal to cover the money that they all had purchased ad packs with in Traffic Monsoon, paypal said no there isn’t enough money in Traffic Monsoon’s a/c to cover their ad packs so complain to SEC. SEC get a court to appoint the receivers and all of the thousands of people who had business with Traffic Monsoon, including Traffic Monsoon had their money frozen.
    SEC did not investigate the allegations made by paypal before appointing Receivers. My money was frozen with Traffic Monsoons money and all of the customers of Traffic Monsoon. I could not conduct my business due to this action by SEC and the receivers. I have been living off my savings and am now broke, My husband and I have used all of my savings, i.e. $100,000 to live on while all of this business has been going on caused by paypal and SEC. We had retired early, we sold our business and put a good amount into the business with Traffic Monsoon, that was suppose to be our income to live on and the $100,000 was our savings to stay in the bank. Because SEC did not investigate before involving the receivers many people who had put money into a business with Traffic Monsoon who do not even live in the USA are now suffering hardship. Traffic Monsoon did not even conduct their business in the USA and only 10% of the people involved with Traffic Monsoon live in the USA. so why do they have control of what happens with our money.
    I want SEC to give me back the $100,000 that I have lost to date, and that is not counting the money I have in Traffic Monsoon, and along with all of the other people who have lost their money including Charles Schofield.
    You and others talk about the Budget for different agencies in the USA that is extensive budgets for SEC and the others, ie. the Billions of Dollars in their budgets, SEC need a big budget to pay their lawyers for all of the companies that they take to court which are sometimes in the wrong but they proceed without investigating, they should also have to reimburse all of the people, all of the customers who sometimes have their life savings involved in business in companies like Traffic Monsoon. People just like me who end up broke because of agencies like SEC who can do whatever they like, No consequences, no pay back to the people that they hurt, they are alright, the same as you, you all go to work and decide on peoples lives, you all go home and go to bed without any conscience for all of the lives you have ruined. Please have a look at SEC’s policies and actions and see the far reaching consequences of their proceedings, their actions, their misconduct. The USA Government have a duty to make sure that what SEC are doing is in the best interests of the people by being diligent in their investigations.
    Regards Julie Dixon,

    1. Hi Julie,

      Thank you for sharing your story.

      Yours, in gratitude,

      Jason

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