RJ and Makay

A rule proposed by the Securities and Exchange Commission (SEC) on Wednesday is central to the ongoing battle against excessive risk-taking on Wall Street. Under the rule, large investment advisors and broker-dealers would have to end compensation programs that promote excessive risk-taking.

The SEC voted 3 to 2 to release an initial draft of the rule, which would require advisory firms and broker-dealers with more than $1 billion in assets to disclose their incentive-based pay programs. If the rule is adopted, it would enable regulators to prohibit compensation that “encourages inappropriate risks” or could lead to substantial financial losses by offering “excessive compensation,” the SEC says.