Stealth Deregulation & Institutional Decay

The Commissioner Crisis is real.

Work Stuff

Being back in the saddle at ETF.com remains incredibly invigorating, but a few folks have noted they’re missing my stuff, and I get it — we’re all drowning in content, and we’re making some cool stuff at ETF.com multiple times a day now.

Here’s what our folks have been doing and direct links to the right pages, for your bookmark pleasure:

• Having Lara Crigger back on the page has been a huge win: check out her latest explainer on fund structures. Here’s her author page.

• Sumit Roy has been on absolute fire. Here’s his.

• We’ve also been cranking out podcasts. Brad Roth has been anchoring the single-fund deep dive show, “Behind the Ticker,” and I’ve been summoning the independent ETF analysts in the world to the “ETF Zoo” every two weeks. Both have been a hoot, and I think the content's fantastic. Here’s the Podcast page.

I wish I had more energy to write long form rabbithole pieces exploring fun new ideas, but reality seems to move too fast. Here’s my author page. My latest rants have been about the capitalism-destroying nature of the SpaceX IPO, and an explainer on securities lending, which a bunch of people still seem to misunderstand.

But honestly, it’s hard to know where to start every day. Wars. Stupidity. Inflation. AI. Doomers. Corporate socialism. Slush funds. None of this is “my lane.”

In My Lane: Institutional Decay as Policy

Regulation and market structure. I feel pretty good about those being my lanes. Most of my career I have been surrounded by people — friends, mostly! — who are further to the “right” of me on most issues, who have almost without question hailed any turn towards less regulation in markets. When I get invited to panels and discussions, it often feels like I’m the “token pro-regulatory guy” in the room.

But all I’ve ever wanted (as a neurospicy whacko) is:

• To have clear rules and laws about how things work.

• To have those rules and laws enforced.

Most of my life, this has been the work of two big institutions: The SEC and the CFTC. Congress wrote laws about how markets should work, the institutions instantiated those laws in regulations, and then ensured they’re followed.

This seems like it should be uncontroversial but here we are. Securities laws are being enforced/pardoned/ignored with the most extreme capriciousness in my lifetime. Every single day I see folks in my lane breaking the rules, and nobody cares. All that matters now is what you can get away with. And, while we’ve been distracted by the. flood of non-market-nerd insanity, the financial regulators we rely on for orderly markets are being destroyed.

I don’t even think that’s hyperbole. US market structure relies primarily on 10 relatively independent, very smart people paying close attention. That’s how things stay on track: someone pays attention.

Those ten people are the 5 commissioners of the SEC and the 5 commissioners of the CFTC. Those ten, in a very real way, are what ensure US markets are in fact fair and follow the rule of law.

And when Hester Peirce leaves the SEC, as she just announced, we will have 3. Not 10 … 3. The SEC won’t even have a Quorum, and the CFTC is essentially a defunct commission now run as a sole-proprietorship where only one opinion matters.

Maybe POTUS will get around to appointing a full slate of intellectually diverse and well-respected regulators to these now-7 empty positions, but come on, do you really think that’s his or anyone else’s top priority? I suspect we’ll get a fast-tracked single commissioner to the SEC, so they can function, and then nothing. Meanwhile, overall staffing levels at both institutions are down between 15-25% depending on what you count and who you ask, while the actual remit of both is expanding rapidly to cover prediction markets, tokenization, massive IPOs and a potential rewrite of the whole settlement stack in the coming decade.

Nothing like moonshot projects with no leaders and diminished staff to guarantee “success!” This is not an accident. It’s a blank check for regulatory avoidance by the donor class.

I cannot tell you, the investor, the advisor, the ETF nerd, what will break. I cannot tell you what to do about this. It does not mean “number go up/down” and therefore won’t crack the algorithm in any meaningful way.

That’s why this is so frustrating. That’s why it so aggravating.

This is how intentional institutional decay works: you hollow out the building at the foundation until eventually something breaks, everything falls down, you point the finger at someone you dislike, and leave the mess for the next sucker to clean up. It’s the pattern we’ve seen in other agencies, and we’re seeing it in action here too.

I see the majority of the industry just kind of blindly cheering it all along, looking for the gaps they can profit from.

Black hats. White hats. You know the drill. Be careful out there.