SEC Chair White was the sole witness at the House Financial Services Committee hearing titled “Examining the SEC’s Agenda, Operations, and FY 2016 Budget Request.” Her remarks addressed completed SEC initiatives, current SEC priorities and future SEC regulatory actions.
Chair White outlined the SEC’s regulatory accomplishments and highlighted the work of each of the SEC’s divisions and offices, and noted the ways in which the SEC has made progress in implementing the Dodd-Frank and JOBS Acts.
Notably, Chair White stated that the SEC’s review of equity market structure continued to progress with a “data-driven approach” that helped to identify areas where improvement is needed. She outlined a series of rulemaking initiatives on which the SEC plans to focus in the upcoming year, which include:
- a rule proposal, scheduled to be considered on March 25, that would eliminate an exemption from national securities association membership requirements for broker-dealers that trade in off-exchange venues;
- rules designed to improve firms’ risk management of trading algorithms and to enhance regulatory oversight of their use;
- rules that would expand the information that alternative trading systems (“ATSs”) disclose to the SEC about their operations and make ATSs’ operational information publicly available for the first time;
- an order-routing transparency rule that would require the disclosure of customer-specific information that a broker is expected to provide to institutional customers on request;
- an anti-disruptive trading rule to address the use of aggressive, destabilizing trading strategies in vulnerable market conditions when they could exacerbate price volatility the most; and
- a rule regarding the status of active proprietary traders as dealers.
Chair White also addressed the implementation of a fiduciary duty standard, stating that “broker-dealers and investment advisers should be subject to a uniform fiduciary standard of conduct when providing personalized securities advice to retail investors.” She identified three main challenges in proposing a uniform standard: (i) defining a standard that is codified, principles-based and rooted in the fiduciary duty applicable to investment advisers; (ii) providing clear guidance on what the standard would require; and (iii) allowing for the meaningful application, examination and consistent enforcement of the standard.
On a different note, Chair White observed that the SEC has provided the Department of Labor (“DOL”) with “technical assistance” regarding its potential changes to the definition of “fiduciary” under ERISA. She reiterated the SEC’s commitment to working with the DOL by providing assistance and information involving the best “regulatory” approach, including the projected effect on retail investors of any potential amendments.
Finally, Chair White explained that the SEC’s FY 2016 budget request of $1.722 billion is necessary in order to maintain its responsibilities given the growing size and complexity of the securities market. The SEC’s budget will be dedicated to the following “key” areas:
- bolstering examination coverage for investment advisers;
- focusing on economic risk analysis to support rulemaking and oversight;
- meeting its expanded responsibilities for overseeing the securities markets and key participants in those markets; and
- strengthening its core enforcement functions to detect, investigate and prosecute wrongdoing.