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Statement on Investment Company Liquidity Disclosure

June 28, 2018

Thank you, Chairman Clayton, and thank you to the terrific Staff in the Division of Investment Management, especially the Division’s exceptional David Bartels and Division Director Dalia Blass, for all of the hard work that has gone into this process.

A bare majority of the Commission recently took the unusual step of re-proposing a unanimously adopted, already-final rule that would have given investors critical information about the liquidity of the mutual funds they own. Today the same majority moves to finalize that proposal, again over both Commissioner Stein’s dissent and mine. Like the proposal, the final rule is based on the bizarre claim that investors might find information about liquidity so confusing that we serve them best by keeping the information secret.[1] There is no more evidence today than there was at the proposal stage for that paternalistic premise, so I respectfully dissent.[2]

What’s more, between the proposed and final stages the rule has taken a troubling turn. Not content to keep investors in the dark, the majority today calls for comment on whether we should abolish the entire liquidity classification regime itself.[3] Market participants who have invested millions of dollars and thousands of hours developing systems for liquidity reporting now have no basis to know what, if anything, the Commission might require in that respect in the future. We owe investors and the markets more certainty than this.

But I am encouraged by one aspect of today’s vote: it shows what the SEC is capable of when we want to get something done. It’s been just 106 days since the majority voted to propose this rule, and here we are voting to finalize it. We have received and considered the comments in a matter of weeks. While I cannot join the majority, I know the Staff has put in a lot of late nights to make this timeline possible, and I applaud their hard work.

I only wish we were as responsive to investors and Congress.

It’s been eight years since the passage of Dodd-Frank, and we have not yet finalized more than 20 rules required by that law. We’ve received, for example, more than 100,000 comments from investors urging us to finalize rules governing executive pay, including rules that would give investors information about the relationship between executive pay and performance, the clawback of erroneously awarded executive pay, the hedging of stock-based compensation, and banker pay.[4] Yet those rules have been sitting at the proposal stage for an average of more than 1,000 days:

Rule Proposal Date Proposed Date Finalized Days Since Proposal
Investment Company Liquidity Disclosure March 14, 2018 Today 106
Disclosure of Executive and Director Hedging of Compensation February 9, 2015 1,235
Clawback of Erroneously Awarded Executive Compensation July 1, 2015 1,093
Disclosure of Executive Pay And Performance August 29, 2015 1,034
Disclosure and Regulation of Banker Pay May 6, 2016 783

Our failure to finalize rules required by law hangs over the Commission each time we move forward with new discretionary rules, especially with the speed that has characterized this process. So I hope and expect that we will proceed with finalizing the required Dodd-Frank rules with as much alacrity as we did with this one. The law requires no less.

[1] Securities and Exchange Commission, Adopting Release, Investment Company Liquidity Disclosure, Release No. 34-____, (June 28, 2018), at 4 (“However, since we adopted these requirements, interested parties have raised concerns that the public disclosure of a fund’s aggregate liquidity classification information on Form N-PORT may not achieve our intended purpose and may confuse and mislead investors”).

[2] As I pointed out at the proposal stage, “the only support for th[is] conjecture is provided by letters from industry groups,” and “we should not confuse industry arguments for evidence.” Statement of Commissioner Robert J. Jackson, Jr. on Proposed Amendments to Public Reporting of Fund Liquidity Information (March 14, 2018). But see Adopting Release, supra note 1, at 4-5 & nn.11-12 (providing, as the basis for “concerns” regarding investor confusion, nothing more than citations to letters from SIFMA AMG and the Investment Company Institute).

[3] See id. at 29.

[4] See Securities and Exchange Commission, Comments on Executive Compensation: Title IX Provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (describing more than 100,000 comments from investors across the Nation regarding unfinished Dodd-Frank executive pay rules).

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