SEC Rulemaking: An Empirical Analysis of Comments and Memoranda

Document Type

Article

Publication Date

2025

Abstract

The Securities and Exchange Commission commonly solicits public comment as part of its rulemaking process. The agency also prepares memoranda memorializing meetings with industry advocates and others seeking to influence rule adoptions. In a novel methodological approach, we apply large language models (LLMs) and sentiment analysis to 84,826 comments and 5,700 memoranda prepared in connection with 512 SEC rulemaking proceedings spanning 1995 to 2025. We measure correlations between public input (comments and memoranda) and the Commission’s decision to adopt a rule, whether the rule is subsequently challenged in the courts, and whether it survives judicial review. Our use of LLMs allows us to analyze a much larger set of SEC rules than prior work, and the relationship between memoranda and rule adoption and legal challenges appears never before to have been empirically analyzed.

We find that public inputs contain valuable information regarding the probability that a rule is adopted, challenged, and survives judicial scrutiny. Longer average comments and greater disagreement among commenters correlate with a lower likelihood of rule survival, whereas an increase in the number of suggestions correlates with a greater survival likelihood. Rules affecting issuers are less likely to be adopted and more likely to face a court challenge, while rules affecting broker-dealers are more likely to survive judicial scrutiny. As for specific issues, comments emphasizing the burden on competition correlate with a lower likelihood of rule survival, comments raising constitutional questions reduce both the likelihood of rule adoption and survival conditional on a judicial challenge. Comments by academics have no statistically significant effect at any stage of the process.

An increase in the number of memoranda indicates stronger opposition to a rule proposal and is strongly correlated with a decrease in adoption probability and an increase in the probability that a rule is challenged in the courts. Stakeholders who invest more in the process by personally lobbying the Commission, and not just submitting comment letters, appear to be influential and credible when threatening to challenge rules if adopted.

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