The SEC is not captured by a single group of regulatees. Instead, it is subject to
the influence in three different areas corresponding to its three realms of regulation, each defined by one of the three central pieces of enabling legislation that define the SEC’s mission. The Division of Corporate Finance writes and administers the rules pursuant to the Securities Act of 1933, which provides for disclosure regarding the character of securities sold to the public; the Division of Market Regulation writes and administers the rules pursuant to the Securities and Exchange Commission Act of 1934, which provides for the regulation of securities exchanges and dealer markets to prevent unfair practices; and the Division of Investment Management, writes and administers the rules pursuant to the Investment Company Act of 1940, intended to provide for registration and regulation of mutual funds and investment advisers.
Market Regulation is the division of the SEC concerns itself with the rules
concerning stock trading. This division is captured by the two large incumbent
organizations that trade stock, the National Association of Securities Dealers, and the
New York Stock Exchange.
The Division of Investment Management is captured by the trade group that
represents mutual funds, the Investment Company Institute. The incumbent firms in the industry are, not surprisingly, largely content with the status quo. The status quo is one in which the central legal document and sales brochure, the mutual fund prospectus, is mainly impenetrable to investors.
The division of the SEC that approves prospectuses for new securities issued and
regular disclosures for companies with publicly traded stock is not captured by the
companies who issue securities, its direct regulatees. Instead, it is captured by the lawyers who prepare their disclosures and the underwriters who take them public. This capture is easy to understand. The lawyers and underwriters are far less numerous than the issuers, and since they are involved in offerings every day, rather just from time to time (as are the issuers) they are far better informed as well.