U.S. Securities and Exchange Commission commissioner questions broken windows enforcement and highlights active ETF volatility incentives

In remarks at the U.S. Securities and Exchange Commission’s Annual Conference on Financial Market Regulation that the speaker said reflected only personal views, an SEC commissioner challenged whether a broken windows approach works well in securities enforcement and highlighted new academic research on active exchange-traded funds. The commissioner argued that pursuing minor or technically arguable violations can divert scarce enforcement resources, weaken regulatory predictability, and chill market activity, while the ETF research suggests growth in active ETFs is being driven by a broader retail investor base and incentives for managers to pursue higher-volatility strategies. Using examples ranging from insider trading to off-channel communications cases, the commissioner drew a distinction between conduct widely understood to be prohibited and requirements whose boundaries may be less clear in market practice. The remarks cited a conference paper finding that sweep investigations opened during the broken windows era were 8% to 9% more likely to result in enforcement actions, partly because strict-liability violations are easier to charge, but cautioned that studies organized by SEC chair may not capture the long lag between investigation openings and filed cases. On ETFs, the commissioner noted that ETF assets increased from USD 296 billion in 2005, or about 3.2% of SEC-registered open-end fund assets, to USD 13.4 trillion in 2025, nearly 30%, compared with USD 31.4 trillion for mutual funds, and said continued empirical research is needed as the active ETF segment expands.