Last Friday Dr. Craig Lewis, Chief Economist and Director of the Division of Risk, Strategy, and Financial Innovation took some time to meet with the first-year Nicholas Center students to give an overview of how the SEC operates and what roles his division plays within the organization
Headquartered in Washington DC, the US Securities and Exchange Commission is made up of five divisions— Corporate Finance; Trading and Markets; Investment Management; Enforcement; and Risk, Strategy, and Financial Innovation. Among the primary responsibilities of these divisions are interpreting and enforcing federal financial laws, issuing new securities laws, and overseeing the agencies that regulate publicly traded companies. Currently, the SEC is headed by Chairman Mary Schapiro along with four other presidentially appointed commissioners.
The Division of Risk, Strategy, and Financial Innovation is tasked with the economic analysis that supports many of the other divisions in their duties. Two primary responsibilities of the division are policy-making support and litigation support.
All newly proposed rules developed by the SEC must be supported by sound analytical data in order to gain approval. Dr. Lewis and his staff work with the policy makers to develop the financial models that accompany these proposals. Given the weight of the decisions made by the SEC, the analytical support accompanying new rules is highly scrutinized and, therefore, must be both thorough and accurate.
Another task of the RiskFin division is litigation support. Similar to policy-making support, many of the lawsuits involving the SEC require advanced economic analysis. Dr. Lewis explained that his department had been involved with several high-profile cases that have made news throughout the financial industry over the past few years. He also described one of the processes used by the SEC in key litigations— an event study. An event study is the analysis of an event or transaction that attempts to determine what may have caused it.
Having the opportunity to hear some personal and unique insights from an SEC insider was certainly an interesting and educational experience for the class. The Nicholas Center Class of 2013 is honored to have had the opportunity to spend some time with Dr. Lewis, and we are all proud to have him as a University of Wisconsin alumni family.