Who knows what evil lurks in the hearts of the Securities and Exchange Commission?

The Shadow SEC thinks it does.The Shadow SEC, a self-appointed panel of five - mostly free-market economists - intends to second-guess the real SEC, a presidentially appointed panel charged with keeping the stock markets fair and honest.

The SEC oversees not only the trading of stocks and bonds but also mutual funds and investment advisers. Its actions affect the jobs, investments and futures of millions of Americans.

The Shadow SEC counts among its members 1990 Nobel Prize-winning economist Merton H. Miller and former SEC Commissioner Charles C. Cox.

At its first meeting, it called for elimination of an SEC rule approved earlier this year that limits index arbitrage, a form of program trading, on the New York Stock Exchange when the market rises or drops 50 points. The panel also called on the SEC to revise rules governing shareholders' absentee ballots or proxies.

Critics have called the body irrelevant or presumptuous. Even those who think there is a place for a Shadow SEC believe its role will be minor.

Samuel Hayes, investment banking professor at Harvard University's business school, said the concept of economic criticism "is an excellent idea. I just don't take too seriously the establishment of a regulator in exile."

"Frankly, I don't understand why some people are so upset about a Shadow SEC," said SEC Commissioner Philip R. Lochner. "There are 1,000 conferences a year around the country on securities matters and this is one of them."