SEC Chair White Embraces Regulatory Initiatives beyond Disclosure

Chair Mary Jo White reviewed SEC progress on a number of prominent initiatives relating to: (i) asset management, (ii) equity markets structure, and (iii) SEC disclosure regimes. In remarks made at the annual “SEC Speaks” conference, Chair White stated that the SEC is “not only” a disclosure agency, and that SEC proposals reflect “careful consideration” of tools beyond disclosure. She said that complexity of products, changes in market participant behavior, pervasive network technology and systemic risks “call for additional protections.”

Regarding asset management, Chair White pointed to (i) a proposal to enhance reporting for investment advisers and mutual funds to improve the quality of information for investors; (ii) a proposal requiring that funds monitor and manage derivatives-related risks and provide limits on their use; and (iii) proposed reforms designed to promote stronger and more effective liquidity risk management across open-end funds and limit the adverse effects that liquidity risk can have on investors and potentially the broader markets. She stated that finalizing these rules will be 2016 priorities.

Regarding equity market structure, the Chair commented that the SEC proposed two rules to enhance the SEC supervision of markets: (i) a proposal to broaden the oversight of active proprietary trades, including high-frequency traders; and (ii) the first-ever major update to the regulations for alternative trading systems. Chair White noted that the SEC issued an advance notice of proposed rulemaking on transfer agents. She said that the SEC will look to finalize these proposals this year, as well as to advance order routing disclosures and trading algorithm risk controls.

Concerning disclosure effectiveness, Chair White said that the SEC will address the form and content of financial statements by entities other than Regulation S-X registrants.

Beyond the three core areas, Chair White discussed: (i) shortening the settlement cycle from T+3 to T+2 to reduce potential systemic risk; (ii) enhancing filings through the expanded use of structured data; (iii) finalizing rules updating the intrastate offering exemption; (iv) considering recommendations for a universal proxy; and (v) examining final rules for resource extraction.

Lofchie Comment: Chair White recognizes that the SEC imposes requirements that go beyond disclosure and makes a fair point that the SEC needs more tools. That said, it is important to question both the work that the SEC has done with the tools that it has, and who actually benefits from use of these tools. As to the SEC’s proposed requirements regarding risk management, these proposals have been sharply criticized by the Investment Company Institute as increasing risk for investors. As to the rules regarding resource extraction, it would be hard to make any serious argument that they can, in any way, really benefit investors.

 

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