Donaldson caves

So much for the tougher SEC. From today's Journal:

Securities and Exchange Commission Chairman William Donaldson, facing business and political criticism for advocating an agenda that some consider too regulatory, is softening his stance on two controversial proposals he initially championed.

In recent weeks, Mr. Donaldson has told SEC staffers and others that he is reconsidering his support for a proposal to overhaul the way stocks are traded in the U.S., according to people who have spoken to him about the matter. The New York Stock Exchange opposes the proposal, and now Mr. Donaldson may back a less-radical plan for overhauling trading rules.

[...]

Mr. Donaldson was brought in as chairman in the aftermath of several corporate scandals to help restore investor confidence and to shore up the SEC's reputation as an effective watchdog. Since then, he has come under fire from fellow Republicans for pursuing a regulatory agenda that some say is out of sync with his party's pro-business stance. He has pushed through significant proposals on mutual-fund governance and hedge-fund regulation with only the backing of the SEC's two Democrats. He also has clashed with his two fellow Republican commissioners on some enforcement issues. Republican anger toward Mr. Donaldson has prompted speculation that he may leave before his term expires in 2007.

In an interview Monday with The Wall Street Journal, President Bush praised Mr. Donaldson for holding corporate wrongdoers accountable but cautioned against regulatory overreach. "You want government to uphold law. What you don't want government to do is to freeze investment. And there's an interesting balance there," President Bush said.

Some within the SEC said the political and business pressure is causing the chairman to tread carefully when considering this latest proposal to revamp stock-trading rules. "Donaldson, as much as possible, is looking for regulatory approaches that get as much support as possible and, at this moment, is not interested in taking on something as controversial" as the plan to revamp stock trading, said an SEC official familiar with his thinking.

[Emphasis added]

Well, that was nice while it lasted.

I'm agnostic on the best-price rule; I just don't know enough about it to know whether it's a good or bad idea. But I do know that there has been a lot of heat on Donaldson lately, for trying to enforce rules that require businesses adhere to only minimal standards of honesty and accountability. Yesterday's WSJ had an interview with Bush in which he made more comments like the one above:

He praised the Justice Department and the Securities and Exchange Commission for tough policing of misdeeds in corporate America, but warned of a danger of squelching investments by going too far. "We've been through a very difficult period, and the Justice Department and SEC have been doing a very good job of sending a clear signal that if you break the law there will be consequences," he said.
But he also called for "balance," saying: "At the same time we are mindful that a system that can become too onerous is one that makes America not the best place in the world to do business."

Getting the message, Donaldson? Apparently, he did, and he's caved to at least some of their demands. Not a good sign, but not too surprising.