SEC Chair Jay Clayton laid out near-term narrowly focused regulatory goals and committed the agency over the long term to greater transparency. The set of priorities will be published as part of the federal government’s Unified Agenda.
In remarks at the Practical Law Institute’s 49th Annual Institute on Securities Regulation, Chair Clayton discussed the SEC approach to developing the agency’s five-year strategic plan while articulating short-term narrowly focused efforts. He identified the following immediate efforts:
- Initial Coin Offerings (“ICOs”): ICOs are vulnerable to price manipulation and other fraudulent actions. The SEC will continue to take steps to warn investors about the enhanced risks presented by ICOs, and to protect market participants from some of these risks. The SEC plans to offer clarification as to (i) how tokens are listed on exchanges (and the standards for listing), (ii) how tokens are valued, and (iii) what protections exist for investors and market integrity.
- Fee Disclosures: Hidden or inappropriate fees and expenses can harm investors. The SEC will pursue enforcement for fee disclosure-related cases, and look to clarify fee disclosure requirements in order to reduce opportunities for misconduct.
- Penny Stocks: Reliable information is often unavailable for penny stock issuers. The SEC will seek to expose some of the “opaque aspects” of the penny stock market.
- Transaction Processing: Transfer agents are “well-positioned” to prevent the distribution of unregistered securities. The SEC will monitor transaction processing, particularly with regard to restricted securities.
- Investor Education: The SEC is creating a searchable database that will contain information on individuals who have been barred or suspended due to federal securities law violations.
In terms of long-term initiatives, Chair Clayton identified shareholder engagement and the proxy process as an area of focus. He emphasized the importance of proxy rules in providing an avenue for shareholder engagement, and said the SEC will conduct a close examination of whether the current rules are effectively meeting both shareholder and company needs. Chair Clayton explained further that voting power often sits with investment advisers rather than shareholders, thereby limiting shareholder participation rates in the proxy process. He stated that the proxy process may demand a review and corresponding updates to ensure that long-term retail investors are fairly represented in corporate governance. Regarding shareholder proposals, Chair Clayton said the SEC intends to find common ground between the viewpoints held by all stakeholders. This will include an examination of ownership level thresholds for the submission of shareholder proposals and the resubmission process.
Chair Clayton highlighted the importance of transparency in the securities markets. He noted that enforcement plays an important role in ensuring transparency, and stressed that transparency can play a role in deterring, mitigating or eliminating wrongdoing before an enforcement action becomes necessary.
Lofchie Comment: From a financial policy standpoint, the SEC’s renewed focus on its traditional economic missions (good disclosure, investor protection) is an important change in priorities. When combined with a rulemaking agenda that is limited to achievable and announced goals, businesses are better able to prepare.