By John F. W. Rogers and Kenneth E. Bentsen, Jr.

SIFMA held its annual State of the Industry media briefing on December 3, 2015 in NYC. In this examination of the state of America's capital markets, we discussed the need to achieve a regulatory balance that ensures our capital markets remain the most deep, liquid and well-functioning in the world.

The State of US Capital Markets

#CapitalMarkets recognize and drive capital to best ideas and enterprises - John Rogers @GoldmanSachs, Chair 2016 #SIFMA Board of Directors

— SIFMA (@SIFMA) December 3, 2015

The U.S. has actively promoted a free market system around the world through public policy and private sector expansion, asserting capitalism as a catalyst for innovation, opportunity and dynamism. Innovation coupled with the free flow of capital has been an integral component for promoting the good-and-welfare, supporting job creation, economic development and prosperity.

The challenge and the opportunity in 2016 and beyond – as global markets and economies become more open, accessible and interconnected than ever before – is for U.S. markets to retain their well-deserved reputation as the best in the world.

Markets and Policy: Achieving Regulatory Balance

On a level playing field, the U.S. capital markets will continue to compete against our global competitors. However, this demands that they remain of the highest quality: deep and broad centers of liquidity, standard-setters for market best practices, staunch defenders of investors' interests that meanwhile remain attractive to business and investment.

Well-calculated and well-informed risk-taking is the lifeblood of vibrant and dynamic financial markets. Of course we know too well that it is possible to have too much risk in the financial system, but we must also recognize that it is just as possible – and maybe even just as perilous over the long term – to have too little. We court stagnation or even stand-still when lenders and investors retreat to the sidelines, taking with them the key driver of overall economic growth.

As we examine the state of our capital markets – especially in a world of anemic growth when it is essential for policymakers to seek out ways to spur and sustain economic activity – we must question: while financial innovation may have outpaced regulation before the financial crisis, has the pendulum now swung too far, and away from optimizing the benefits of stable, well-functioning capital markets?

At SIFMA, specific discussions amongst our members are resulting in common refrains of concern. For example:

1. Are capital and leverage requirements constraining banks' ability to lend to companies that are looking to expand their operations, buy new equipment, hire more people or invest in R&D to create new products and lines of business?
2. Has the reduced availability of credit made small business owners more reluctant to increase wages or hire new workers?
3. Are cities and states finding it more difficult to finance new construction of bridges, tunnels and schools and necessary improvements to existing infrastructure?
4. Are higher transaction costs in derivatives markets affecting an airline's ability to hedge fuel costs efficiently or a farmer or rancher's ability to know the price at which he can sell his wheat or cattle in the future?
5. Will lower liquidity and higher volatility in the corporate bond market lead to depreciation in American retirement savings accounts?

 
We are optimistic that we can achieve a well-balanced regulatory calibration that promotes safety and soundness while at the same time driving economic growth. Looking ahead, as we work through these and other issues with policymakers and industry representatives in the coming year, we will look to advance the dialogue around 'finding the fulcrum' of regulatory oversight.

SIFMA's 2016 Advocacy Agenda

SIFMA's membership represents nearly 80%, or $16 trillion, of broker-dealer clients' assets under management; our Asset Management Group represents approximately 50%, or over $30 trillion, of assets under management; and our Private Client Group represents over 70%, or 266,000, of U.S. financial advisors. All play a key role in the U.S. economy by providing much needed financing, meeting the retirement and financial planning needs of millions of Americans. As the principal advocate for the U.S. securities industry, we represent our members before federal and state regulators, Congress and state legislatures, the Executive Branch, foreign regulators and policy makers, independent regulatory organizations and standards setting organizations.

SIFMA convenes 10,000 financial professionals from our several hundred member firms on more than 100 industry committees and societies, as well as countless working groups, on matters related to market rules, operations, compliance, taxes and regulations.

To date in 2015, SIFMA has filed over 145 comment letters and 23 amicus briefs on issues critical to designing and calibrating policies that keep pace with, and appropriately govern, a rapidly-evolving, interconnected and technology-driven financial marketplace.

Here's a look at some of our policy agenda in 2016:

Cybersecurity
Cybersecurity remains a top priority for the financial services industry. Cyber attacks are increasing in frequency and sophistication, so the industry must continue to dedicate tremendous resources to address this growing threat. SIFMA leads a number of projects and services to help members secure, maintain and recover business operations against disruptions and threats, thereby promoting a safer and more resilient marketplace. There are two primary ways we can manage threats and achieve market resiliency: 1) Planning and Preparing and 2) Information Sharing.

Fiduciary Standards
SIFMA has long supported action by the U.S. Securities and Exchange Commission to establish a uniform fiduciary standard for broker-dealers and investment advisers when providing personalized investment advice about securities to retail customers. Our members feel strongly that the approach taken by the Department of Labor to revise the Employee Retirement Income Security Act, as proposed, will result in less investor choice and greater cost, at the expense of those it attempts to help.

Market Liquidity
Current market evidence points to a measurable reduction in financial market liquidity, a subject of concern for all market participants because of the critical role liquidity plays in effective market functioning.

Senior Investors
An astounding 1 in 5 Americans aged 65 or older have been victimized by financial fraud, often by those closest to them. Worse, it is estimated that only 1 in 44 cases of financial elder abuse is reported. More than half of older Americans utilize financial advisors, and SIFMA is committed to finding solutions that help those advisors protect their senior clients from exploitation and fraudulent practices. SIFMA has been working with industry members, academics, and state and federal policymakers to advance policies, practices, rules, regulations and laws which enhance senior investor protections.

Speaking at the 2015 SIFMA Annual Meeting this fall, U.S. Treasury Secretary Jacob. J. Lew remarked, "We're at a place where the world wants to know, 'what is the secret to our resilience?'… I think that's part of the greatness of the United States. The resilience of the American people and our capacity to look ahead and build a better future." On behalf of the Board of Directors and the entire staff at SIFMA, we look forward to continuing our work with you to preserve and promote the vital role of our capital markets as a key component in that better future.

John F. W. Rogers
Executive Vice President, Chief of Staff and Secretary to the Board, Goldman, Sachs & Co. and Chair, 2016 SIFMA Board of Directors

Kenneth E. Bentsen, Jr.
President and CEO, SIFMA