In September 1953, SEC Chair Ralph Demmler stood before an assembly of Wall Street insiders to discuss the “current thinking” at the SEC. In a belt-tightening era, one of the challenges most pressing for Demmler was how, within tight financial constraints, to maintain an effective inspection regime. “From the standpoint of the public,” he said, “the whole scheme is somewhat haphazard.”(1) Out of the chaos Demmler hoped to retrieve the organizational equivalent of the Lever of Archimedes.
Archimedes believed that given a lever and the right place to stand, one could move the world. Those responsible for the SEC exam program, over the years, did not expect anything so grand—they simply sought a way, short of an impossibly expensive direct inspection regime, to exert sufficient leverage over registrants to protect investors, promote capital flow, and maintain fair and orderly markets.
This Spotlight exhibition chronicles the development of the Securities and Exchange Commission’s inspection, examination, and compliance functions from the founding of the agency in 1934 to the creation of the Division of Examinations in 2020. The gallery documents the process in which the SEC, in response to market developments and external events and nearly always under budgetary pressure, organized itself and its programs so as to better understand and regulate the conduct of exchanges, broker-dealers, investment companies and advisers, hedge funds, private equity firms, and many other registrants.
Office of Compliance Inspections and Examinations (OCIE) presents these developments through an organizational lens, looking at the early role of regional offices, the growing involvement of the Divisions of Trading and Markets, Corporate Regulation, and Investment Management, and the creation of the Office of Compliance Inspections and Examinations and the Division of Examinations. Throughout, these organizational developments are explained in light of evolving understandings of the nature of financial markets, registrant responsibilities, and the role of the exam.