The purpose of this article is to raise a question regarding how the government ought to think about the efficiency or desirability of rules designed to regulate the market for capital. Although my immediate interest lies with the efficiency criterion for the US Securities and Exchange Commission’s (SEC’s) rules for the US capital market, this question will be of interest to those concerned with global capital markets generally for at least two reasons. First, because the US capital market is a dominant market, the SEC’s ability to successfully adopt rules and defend them from legal challenges (or failure to do so) will have consequences for not only US firms, but also major international firms. Secondly, the specific policy dilemma presented in this article, lying at the intersection of welfare economics and the political economy of regulation, will almost surely be an important concern for regulators of other capital markets as well. We begin with the threshold inquiry: why do countries have securities regulation? It is commonly accepted that some level of central regulation is necessary in the securities market due to market failures that plague both the primary and the secondary markets. These include asymmetric information, adverse selection, moral hazard, agency problems, collective-action problems, externalities and others.