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Effective Regulatory Oversight and Investor Protection Requires Better Information

Commissioner Luis A. Aguilar

May 20, 2015

It is said that, “knowledge is power.”  Knowledge, however, requires information.  And there is no doubt we live in an age of information.  The advent of the Internet and the breathtaking technological advances we have witnessed over the last few decades have given us access to more information than at any time in history.  The available data seems to be limitless—and all available at the touch of a fingertip.

Yet, when I joined the Commission, it quickly became apparent that the SEC did not have the breadth and quality of information necessary to do its job effectively.  As our country experienced the worst financial crisis since the Great Depression,[1] and, as things began to unravel, I sought data and information to analyze the impact of what was occurring—only to find that much of the information available to the Commission was missing, stale, or incomplete.

For example, just weeks into my tenure, a large money market fund “broke the buck,”[2] and it quickly became clear that the information received by the Commission on money market fund holdings was too stale to be of regulatory use.[3]  I recall asking the then-Director of the Division of Investment Management whether other money market funds were at risk, only to be told something to the effect that, “we’re not sure and we’re calling around to get information.”  Needless to say, it is not the answer you want to hear or say.  Instead, you want more definitive answers; answers based on reliable information that will enable you to make critical decisions.  Simply stated, the SEC did not have timely, reliable information to allow it to determine whether other funds were also susceptible to a liquidity crisis.[4]  Clearly, data deficiency has serious ramifications.

As a result, from my early days as a Commissioner, I have been a strong advocate for the collection of high-quality data at the SEC.  For example, during the drafting of what led to the 2010 money market reforms, I championed a rule requiring money market funds to provide monthly disclosures of their investment portfolios, which would provide the Commission with more current information to allow timelier monitoring of money market fund holdings.[5]  Surprisingly, even with a clear need for this data, there were skeptics who doubted the benefits of collecting such data.[6]

Ultimately, the Commission adopted this rule in 2010, and today the SEC staff and the staff at other regulatory agencies rely heavily on the data to monitor money market funds activities.[7]  In fact, there is no equivalent transparency for similarly situated products.  Indeed, a former Director of the Division of Investment Management noted that the Commission “benefitted greatly from the monthly data that Form N-MFP [provided] about money market fund holdings.”[8]  The staff’s ongoing analysis of the new money market fund data, and its review of the gross yield of funds as a marker of risk, has proved useful to monitoring for fraud and other discrepancies.  For example, in 2013, the review of Form N-MFP resulted in an enforcement action when the staff noted that a money market fund’s performance was consistently different from the rest of the market.[9]  In addition, during the Eurozone crisis in 2011, the new data allowed the Commission staff to determine that money market funds were not—as had been widely speculated—overexposed to Irish banks and other European securities during the crisis.[10]  The staff is able to use “real time” data on money market funds’ portfolio holdings to great effect, and the staff’s review of the monthly information often raises questions that prompt the staff to reach out to advisers for answers.[11]

The money market fund experience demonstrated that effective oversight of our capital markets requires that the SEC be well informed through better data collection and analysis.

Similarly, early in my tenure, I started to advocate for improved data about the trading markets. As a result, I heard about a nascent project to try to create a Consolidated Audit Trail (“CAT”) to develop, implement, and maintain a consolidated tracking system for all quotation and trading activity in exchange listed securities.[12]  I searched out the staff with knowledge about this project and learned about the potential benefits of the information that could be derived from such a project.[13]  It became very clear to me that CAT could improve Commission oversight by allowing the SEC staff to monitor the markets more effectively, identify and address potential risks before they metastasize into larger problems, and analyze historical data more efficiently.[14]  Moreover, I learned that CAT could also be a game-changer with respect to combating financial fraud, which is more difficult to identify today because of market fragmentation and automated trading.[15]

In light of these clear benefits, I fought hard to make sure that the CAT[16] project was added to the Commission’s formal regulatory agenda, and I continue to press for its prompt implementation.  It is clear that the data to be provided by CAT will also enhance the Commission’s regulatory efficiency.[17]

In addition to the money market fund disclosure rule and CAT, I have fought for and supported many other data gathering rules at the SEC spanning the entire regulatory horizon, including rules affecting derivatives activities (including credit default swaps), municipal advisors, credit rating agencies, hedge funds, and many others.[18]  I have also been a public voice as to the benefits of high quality, interactive data that can allow the Commission, investors, academics, and the public to better analyze corporate information and market information.[19]

I give you that history so that it should come as no surprise that I am pleased that the two proposed rules that the Commission considers today will significantly enhance the available data, and its use:

  • First, the Commission is proposing new rules, forms, and amendments, to update and enhance the disclosure and reporting framework for registered investment companies (“RICs”), such as mutual funds and exchange-traded funds;[20] and
  • Second, the Commission is proposing rules and form amendments that seek to improve the quality of information that investment advisers retain and report to the Commission.[21]

These rules will result in more useable, complete, and high-quality information[22] that will have a significant impact across the regulatory landscape.  In particular, the additional information, much of it in a structured and searchable format,[23] should have a positive impact on the way investors can obtain information about their investment advisers and their RIC investments.  The information will also improve the way market participants and interested parties collect, aggregate, and analyze data and trends, as well as enhance the quality and depth of available information.  Lastly, of course, the information will help enhance the Commission’s risk monitoring, examination, enforcement, and other oversight functions.

Investment Company Reporting Modernization

The first proposal we consider today involves significant and substantive changes to the rules and forms under the Investment Company Act of 1940.  Many of these changes will enhance the Commission’s oversight functions and improve the disclosures received by investors.  To this end, the proposed rules have the following important components:

  • First, the rules would require certain RICs to report information about their portfolio holdings to the Commission on a monthly basis on new Form N-PORT.[24]  Timely and frequent reporting of portfolio holdings will help the Commission carry out its regulatory responsibilities in many programmatic areas, including examinations, enforcement, fund monitoring, policymaking, and disclosure review.[25]
  • Second, the rules would standardize disclosures on derivatives in investment company financial statements.[26]  These enhanced disclosures will provide investors with clear and consistent disclosures across many funds to help investors make more informed investment decisions.[27]
  • Third, the rules would require RICs, other than face-amount certificate companies,[28] to report certain census-type information to the Commission annually on new Form N-CEN.[29]  This information will enhance the Commission’s understanding of industry trends, inform policy, and aid the Commission’s examination staff.[30]

In addition, the requirements to submit information in a structured data format will improve the retrieval, searchability, and analysis of relevant fund data by the SEC staff and the public alike.[31]  This will allow investors, regulators, and market participants to organize and analyze large amounts of data and information more efficiently.  These are all positive features of the proposed rules.

The proposed release, however, is not all about data gathering.  In particular, there is one feature that would permit RICs, after satisfying certain conditions, to transmit shareholder reports by making them accessible on an Internet website, rather than printing and mailing the reports to the shareholders.[32]  The release, however, makes it clear that this new feature raises a number of questions.[33]  For example, while this “access equals delivery” model would certainly result in cost savings, it could also result in unintended consequences, such as creating unnecessary hurdles that could discourage shareholders from reading the shareholder reports.

These concerns are borne from the Commission’s prior experience and the staff’s investor research.  After the Commission’s adoption of the e-proxy rules, we have witnessed declining retail investor participation in the proxy voting process.[34]  The e-proxy rules required issuers to post their proxy materials on an Internet website, and then provide shareholders with notice that the proxy materials were available on their website.  Under these rules, issuers have the option to continue to provide paper copies.  Issuers that declined to use the paper option, and only use e-delivery, adopted the so-called “notice and access” model.[35]

As I noted several years ago, retail investor voting, already at low numbers,[36] plummeted at those companies using the notice and access model.[37]  Indeed, statistics demonstrated that the level of voting participation by investors at companies relying on the notice and access model decreased over 30% as to large investors, and over 60% as to smaller investors.[38]  Even more disconcerting are suggestions by some observers that the notice and access model may have led to fewer shareholders even actually reading the proxy materials.[39]

In fact, the Commission staff’s empirical research in connection with today’s proposal shows that some investors continue to prefer to receive paper reports, and some demographic groups of investors are less likely to use the Internet.[40]  Significantly, there is also a risk that even those investors who prefer to use the Internet may be less likely to review reports that are delivered electronically, as compared to reports that are delivered in paper format.[41]

Thus, based on our experience with the e-proxy rules, and the staff’s investor research, this is an area where the Commission should proceed with caution before adopting a similar notice and access model that adversely affects the benefits of shareholder reports.

To this end, I thank the staff for responding to my concerns and including a more fulsome discussion in the release of the issues raised by this aspect of the proposal.[42]  I also appreciate the staff’s efforts to add various safeguards, redundancies, and other features to make it clearer to investors what occurs if they do not respond to notices about the conversion to web access.[43]  I encourage commenters, particularly investors, to respond to questions in the release as to this aspect of the proposal.  Their input will allow the Commission to make a more informed decision.

Proposed Amendments to Form ADV and Advisers Act Rules

Let me now turn to the second proposal on today’s agenda.  Here, the Commission considers proposed amendments to Part I of Form ADV and to various rules under the Investment Advisers Act of 1940 (“Advisers Act”).[44]  In particular, the proposed amendments should improve the quality and depth of the data that investment advisers disclose and, thereby, enhance the Commission’s risk monitoring and oversight of investment advisers’ business activities.  Moreover, the new information in Form ADV should help investors in making informed decisions in the selection and retention of advisers.

Let me highlight a few salient points in the release:[45]

  • First, advisers would be required to enhance disclosures as to separately managed accounts.[46]  The information should improve the SEC staff’s ability to spot emerging trends or regulatory risks.
  • Second, today’s rules request more detailed and nuanced disclosure in Form ADV regarding the adviser and its business—such as requiring information on assets under management from non-U.S. clients, and additional information about an adviser’s affiliation with wrap fee programs.[47]
  • Third, the rules would codify the Commission staff’s prior guidance that allows affiliated private fund advisers to file a single Form ADV.  This streamlined registration process, known as “umbrella registration,”[48] provides better and clearer data about groups of advisers that operate as a single business.[49]
  • Finally, advisers would be required to retain additional materials relating to the performance or rate of return for accounts that they manage.[50]  This information should be useful to the Commission and the public in examining and evaluating performance claims by advisers.

These amendments to the Advisers Act and Form ADV should result in greater transparency of the practices and services provided by investment advisers.  This will benefit both investors and the regulatory and examination programs of both the Commission and state securities regulators.


Ultimately, greater access to high-quality usable information fosters confidence in investment decisions and in regulatory actions and initiatives.  Moreover, better data helps the Commission fulfill its mission of protecting investors, fostering capital formation, and ensuring fair, orderly, and efficient markets.  For these reasons, I will support both sets of proposed rules.

In closing, I want to thank the staff for all your efforts, hard work, and dedication to this rulemaking, especially the staff in the Division of Investment Management and the Division of Economic and Risk Analysis.

Thank you.


[1] See, e.g., Eric C. Chafee, The Internationalization of Securities Regulation: The United States Government’s Role in Regulating the Global Capital Markets, 5 J. Bus. & Tech. L. 187, 187 (Spring 2010), available at (“The financial crisis that began in 2008 is arguably the worst financial downturn since the Great Depression.”).

[2] See Senior Supervisors Group, Risk Management Lessons from the Global Banking Crisis of 2008, p. 7 (Oct. 21, 2009) , available at (noting that “[t]he Primary Fund series of the Reserve Fund ‘broke the buck’ following Lehman Brothers’ bankruptcy because of its holdings of Lehman commercial paper.”).

[3] This was due, to the fact that, under the then-existing rules, money market funds were only required to disclose their portfolio holdings to the Commission on a quarterly basis, and were not filed in a format that allowed the Commission’s staff to search efficiently across portfolios or within a portfolio to identify risks.  See Money Market Fund Reform, SEC Release No. IC-28807, at 80 (June 30, 2009), available at  (noting that “[the Commission’s] current information on money market fund portfolios is limited to quarterly reports filed with us which, as noted above, quickly become stale.  Moreover, the reports are not filed in a format that allows us to search expeditiously across portfolios or within a portfolio to identify securities that may raise concerns.  In 2007, our staff was not able to ascertain quickly which money market funds held SIVs, and last fall we had to engage in lengthy and time-consuming inquiries to determine which money market funds held commercial paper issued by Lehman Brothers after it declared bankruptcy.”).

[4] Senior Supervisors Group, Risk Management Lessons from the Global Banking Crisis of 2008, p. 7 (Oct. 21, 2009), available at

[5] Money market funds are required to submit this information monthly via Form N-MFP.  See Money Market Fund Reform, SEC Release No. IC-29132 (Feb. 23, 2010), available at

[6] See, e.g., Comment Letter from Fifth Third Asset Management (Sept. 8, 2009) , available at (stating that “[w]e believe the Commission’s proposal is unduly burdensome, costly and is not an efficient approach for monitoring systemic risks.”); Comment Letter from The Drefus Corporation (Sept. 8, 2009) , available at

 (noting that “[w]e do not support the monthly filing requirement of the new Form N-MFP, on a cost-benefit basis.”).

[7] See Money Market Fund Reform, SEC Release No. IC-28807, at 80 (June 30, 2009), available at (noting that “if [the Commission staff] had had such data immediately available to us, we could have provided additional assistance to the Treasury Department or the Federal Reserve Board in structuring the programs they put into place to protect investors.”); see also Federal Reserve Bank of Cleveland, Money Market Mutual Funds and Financial Stability (Apr. 3, 2014), available at (noting that “The Securities and Exchange Commission (SEC) started collecting information on prime funds’ liquidity positions in 2011 through Form N-MFP. Data gathered from this form suggest that the liquidity positions of prime funds have weakened somewhat since 2011.”).

[8]  See Norm Champ, then Director, SEC’s Division of Investment Management, Remarks to the ICI 2014 Securities Law Developments Conference (Dec. 10, 2014), available at

[9] SEC Press Release, SEC Announces Fraud Charges Against Detroit-Based Money Market Fund Manager (Nov. 26, 2013), available at

[10] See U.S. Securities and Exchange Commission, Division of Risk, Strategy, and Financial Innovation, Response to Questions Posed by Commissioners Aguilar, Paredes, and Gallagher, pp. 31-35 (Nov. 30, 2012), available at; Comments by Sharon Pichler, Senior Financial Analyst, Division of Investment Management, Risk and Examinations Office, at 2015 SEC Speaks (Feb. 21, 2015).  Similarly, the Division of Investment Management’s Risk and Examinations Office (“REO”) was able to conclude that money market funds were not holding excessive amounts of municipal bonds issued by Detroit and Puerto Rico, as had been feared.  Id.

[11] See, e.g., Dave Grim, Director (then Acting Director), SEC’s Division of Investment Management, Remarks to PLI Investment Management Institute 2015 (Mar. 5, 2015) (“Data from [Forms N-MFP] have been used extensively by staff to inform policy and rulemaking, and have assisted Commission staff in examination, monitoring and investor protection efforts.  During the four years we have been receiving the data, the staff has been able to answer current questions in real time about the money market fund industry such as how much exposure did money market funds have to banks in a certain geographic region or country or what percent of money market fund assets were invested in a certain type of security.”), available at

[12] See Consolidated Audit Trail, SEC Release No. 34-62174 (May 26, 2010), available at

[13] I am grateful to the Commission staff, and particularly to John Polise, for taking their time to discuss with me the details of the CAT program, and the particular benefits that could be derived from CAT.

[14] Shagun Bali, The Consolidated Audit Trail: Stitching Together the US Securities Markets, Tabb Forum (Mar. 4, 2015), available at

[15] For example, in executing his $65 billion fraud, Bernie Madoff claimed to be executing large numbers of trades on behalf of his victims.  In some instances, the number of trades that Madoff claimed to be executing each day in certain stocks exceeded the total number of trades that occurred in those stocks on those days.  See Jordan Maglich, Could SEC’s Plan to Track Trades Also Combat Financial Fraud?, Forbes (July 26, 2012), available at  Had CAT been available at that time, the Commission could easily have reviewed Madoff’s trading activity and spotted this inconsistency.

[16] See Consolidated Audit Trail, SEC Release. No. 34-67457, at p. 1 (July 18, 2012), available at (this rule requires national securities exchanges and national securities associations to submit a national market system (NMS) plan “to create, implement, and maintain a consolidated order tracking system, or consolidated audit trail, with respect to the trading of NMS securities, that would capture customer and order event information for orders in NMS securities, across all markets, from the time of order inception through routing, cancellation, modification, or execution.”).

[17] When operational, CAT will be the world’s largest data repository of securities transaction data that will help improve the Commission’s ability to oversee the capital markets.  SEC Rule 613: Consolidated Audit Trail (CAT) Website, Summary of Consolidated Audit Trail Initiative, p. 2 (Jan. 2015), available at  It will also handle 58 billion records of orders, executions, and quote life-cycles for equities and options on a daily basis, and estimated to grow to an estimated 21 petabyte of data footprint within five years of operation.  Id.  The CAT, if implemented, will allow the Commission to track efficiently and accurately all trading activities throughout the U.S. securities markets.  SEC Website, Rule 613 (Consolidated Audit Trail), available at also Shagun Bali, The Consolidated Audit Trail: Stitching Together the US Securities Markets, Tabb Forum (Mar. 4, 2015), available at

Moreover, the availability of more precise data on trading patterns will help the Commission gain a better understanding of the impact of high frequency trading on the quality and fairness of our markets.  The May 2010 Flash Crash demonstrated once again how the need for more data and information is critical to effective oversight of our capital markets.  Indeed, it took the staffs of both the SEC and the U.S. Commodity Futures Trading Commission over four months just to get the data and analyze the events of those fateful 20 minutes when stock prices experienced extraordinarily rapid and extreme swings.  See Findings Regarding the Market Events of May 6, 2010, Report of the Staffs of the CFTC and SEC to Joint Advisory Committee on Emerging Regulatory Issues (Sept. 30, 2010), available at  (“Of final note, the events of May 6 clearly demonstrate the importance of data in today’s world of fully-automated trading strategies and systems.”).  Had CAT been operational during that time, the information could have been immediately available for analysis.

[18] See Commissioner Luis A. Aguilar, Preparing for the Regulatory Challenges of the 21st Century (Mar. 20, 2015), available at

[19] See, e.g., Commissioner Luis A. Aguilar, Improving Transparency for Executive Pay Practices (Apr. 29, 2015), available at (noting that the proposed rules “also take an important step forward in furthering the usability and comparability of executive compensation disclosures by requiring that ‘pay versus performance’ information be provided in an interactive data format using XBRL.”); Commissioner Luis A. Aguilar, Preparing for the Regulatory Challenges of the 21st Century (Mar. 20, 2015), available at (noting that “[t]he Commission recognizes that data gathering is only the start.  It also should be able to effectively use and analyze the data.  To that end, the Commission is improving the transparency and the overall usefulness of some of the disclosure information it receives, by requiring data tagging.”); Commissioner Luis A. Aguilar, Ensuring the Proxy Process Works for Shareholders (Feb. 19, 2015), available at (discussing the importance of data tagging of proxy information to increase informed shareholder participation in the proxy process).

[20] Investment Company Reporting Modernization, Release Nos. 33-_____, 34-_____, IC-_____, File No. S7-__-15, (May __, 2015), available at _______________ (“ICA Proposed Rule”).

[21] Amendments to Form ADV and Investment Advisers Act Rules, Release Nos. IA-_____, File No. S7-__-15, (May __, 2015), available at _______________ (“Form ADV and Advisers Act Amendments Proposing Release”).

[22] U.S. Securities and Exchange Commission, Strategic Plan: Fiscal Years 2014-2018, pp. 6, 37, available at (last visited May 13, 2015).

[23] The additional information proposed under today’s rules and provided by investment advisers in Part 1 of Form ADV will be available to the public in a structured format that can be searched and sorted.  See SEC Website, Education/Hel/Guides/FAQs, Frequently Requested FOIA Document: Information About Registered Investment Advisers and Exempt Reporting Advisors: What You Should Know About The Data Files, available at  In addition, the data required to be submitted under the proposed new rules, forms, and amendments under the Investment Company Act would be required to be submitted in structured data format and XML data format.  See IC Proposed Rule at I.B..

[24] ICA Proposed Rule at II.A.

[25] ICA Proposed Rule at II.A.  This information could be particularly useful for fund monitoring during periods of market stress.  See id.  Moreover, the new rules would close data gaps and provide disclosures on various risk metrics to gauge fund exposures to changes in asset prices and interest rates.  See id.

[26] ICA Proposed Rule at II.C. (by amending Regulation S-X).

[27] ICA Proposed Rule at II.C.

[28] Face-amount certificate companies are investment companies engaged in the business of issuing face-amount certificates of the installment type, and have such certificates outstanding.  See ICA Proposed Rule at II.E.2.; Section 4(1) of the Investment Company Act of 1940 [15 U.S.C. 80a-4(1)].  Currently, they are not required to file reports on Form N-SAR, which would be replaced by Form N-CEN under the proposal.  See ICA Proposed Rule at II.E.2.  Face-amount certificate companies would continue to file periodic reports pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934.  See ICA Proposed Rule at II.E.2.

Today, there are very few face-amount certificate companies.  See, e.g., Alistaire Bambach, SEC Assistant Regional Director and Chief Bankruptcy Counsel, Issues that the SEC Confronts in the Liquidation of Hedge Funds, 22 Am. Bankr. Inst. L. Rev. 125, 128 & n. 21, (Winter 2014) (“Face Amount Certificate companies were more common in past decades—indeed, only a few exist today.”); William K. Sjostrom, Jr., Tapping the Reservoir: Mutual Fund Litigation Under Section 36(a) of the Investment Company Act of 1940, 54 Kan. L. Rev. 251, 259 & n. 66, (Oct. 2005), available at  (“Face-amount certificate companies are almost extinct”); Larry D. Barnett, The Regulation of Mutual Fund Names and the Societal Role of Trust: An Exploration of Section 35(d) of the Investment Company Act, 3 DePaul Bus. & Comm. L.J. 345, 349 & n. 20, (Spring 2005) (“Few face-amount certificate companies appear to exist today.  An indication of the rarity of face-amount certificate companies is that no information on their number and assets is supplied by the Investment Company Institute, which is the national association of investment companies in the United States.  Investment Company Institute, at index.html (last visited Feb. 15, 2005).”); Safra Republic Holdings S.A., SEC No-Action Letter (Apr. 21, 1998), available at (attaching letter from David M. Becker, Wilmer, Cutler & Pickering, to the SEC dated Apr. 20, 1998, at p. 6, n. 8, stating that face-amount certificate companies are “largely extinct”); ICOS Corp., Exchange Act Rels. No. 19334, 58 Fed. Reg. 15392, 15393 n.1 (Mar. 22, 1993) (“Only two face-amount certificate companies remain in existence.”).

[29] ICA Proposed Rule at II.E.

[30] ICA Proposed Rule at II.E.

[31] ICA Proposed Rule at I.A.

[32] See ICA Proposed Rule at II.D. and proposed Rule 30e-3, §270.30e-3 (Internet availability of reports to shareholders).

[33] See ICA Proposed Rule at II.D.

[34] Consider what has happened with shareholder participation in the proxy process since the Commission adopted the “access equals delivery” rule in 2005, and the subsequent e-proxy rules in 2007.  See Securities Offering Reform, SEC Release No. 33-8591 (July 19, 2005), available at (Under the newly-adopted Securities Act Rule 172, a final prospectus would be deemed to precede or accompany a security for purposes of Securities Act Section 5(b)(2), as long as certain conditions are satisfied.  Under this so-called “access equals delivery” model, investors are presumed to have access to the Internet, and issuers and intermediaries satisfy their delivery requirements if the filings or documents are available on the SEC’s website.); Shareholder Choice Regarding Proxy Materials, SEC Release No. 34-56135 (July 26, 2007) (hereinafter “E-Proxy Adopting Release”), available at

[35] See E-Proxy Adopting Release at 7.  With certain exceptions, the e-proxy rules and proposed Rule 30e-3 have many similarities.  For example, under the e-proxy rules, if issuers chose the “notice only” option, the notice was required to prominently notify shareholders that they could receive a paper or e-mail copy of the proxy materials upon request—similar to the “opt out” provision in today’s proposal.  See E-Proxy Adopting Release at 9.  However, as described above, the e-proxy rules also permitted issuers to choose a “full set delivery” option, in which issuers could also furnish paper copies of the proxy materials to shareholders along with the notice.

[36] See SEC Website, Roundtable on Proxy Voting Mechanics (May 23, 2007), available at (noting that in a 2007 Commission briefing paper for a roundtable on proxy voting mechanics, broker-dealers estimated retail voting rate averages at roughly 30 to 40 percent.).

[37] See SEC Commissioner Luis A. Aguilar, Increasing Accountability and Transparency to Investors (Feb. 6, 2009), available at     

[38] See Fabio Saccone, E-Proxy Reform, Activism, and the Decline in Retail Shareholder Voting, The Conference Board (Dec. 2010), available at; Amendments to Rules Requiring Internet Availability of Proxy Materials, SEC Release No. 33-9108, at 5 (Feb. 22, 2010), available at  Other reports found that retail response rates have declined each year since 2008; indeed, since the introduction of the notice and access model in 2008, retail response rates fell to less than 13% for the period from July 1, 2013 to June 30, 2014.  Telephone interview by Giles Cohen, Counsel to Commissioner Luis A. Aguilar, with Chuck Callen, Senior Vice President, Regulatory Affairs, Broadridge Financial Solutions (Feb. 10, 2015) (and Broadridge Financial Solutions, Inc. report titled “Discussion of Retail Shareholder Participation” (dated 2012) received from Mr. Callen in connection with such interview) (hereinafter “Broadridge Report”).  Conversely, retail response rates for shareholders receiving paper copies of proxy materials have steadily increased during the same period, rising to 31% for the period from July 1, 2013 to June 30, 2014.  See Broadridge Report.

[39] See Comment Letter from Broadridge Financial Solutions, Inc., File No. SR-MSRB-2009-02 (May 5, 2009), available at (noting that statistics on notice and access show that this model has unintentionally resulted in “far fewer investors view[ing] proxy information.”).  A Broadridge study conducted between 2008 and 2009 found that following implementation of the notice and access model, the viewing rates of over 21 million investors indicated that less than one-half of one percent of those who received notification by mail visited the URL and chose to view the disclosure information.  See id. (The Broadridge comment letter also notes that separate studies by Broadridge, the American Association of Retired Persons (AARP), and the NYSE Proxy Working Group found that prior to the notice and access model, over 85% of respondents looked at proxy information at least some of the time.). See id.  While this is an interesting fact for comparison to the Broadridge study showing post-notice and access viewing behavior, it is not necessarily an “apples to apples” comparison as these other studies looked at generally viewing proxy information “at least some of the time,” which can have various interpretations.  Just as significant, Broadridge also found that giving shareholders the option to request free hard copies—that is, the “opt out” clause mechanism—did little to offset this low level of viewership of proxy information.  See id. (finding that an analysis of notice recipients indicated that just over one-half of one percent of recipients requested a free hard copy set of proxy materials).

[40] ICA Proposed Rule at II.D.

[41] ICA Proposed Rule at II.D.

[42] For example, according to the staff of the Division of Investment Management, in 2011, the SEC engaged a consultant to conduct investor testing using, among other things, questionnaires, focus groups, and an online survey to collect information about transmission formats for fund shareholder reports.  See ICA Proposed Rule at II.D.2.  In 2007, the SEC also engaged a consultant to conduct focus group interviews and a telephone survey to determine investors’ preference for electronic delivery of shareholder reports versus paper delivery.  See ICA Proposed Rule at II.D.2.  Finally, the staff reviewed the 2012 investor financial literacy report, and engaged in focus group discussions to assess various disclosure formats.  See ICA Proposed Rule at II.D.2.; U.S. Securities and Exchange Commission, Study Regarding Financial Literacy Among Investors (Aug. 2012), available at  The results of these research, studies, focus groups, and surveys justify at least proposing the new Rule 30e-3, §270.30e-3 (Internet availability of reports to shareholders).

[43] For example, by requiring advance notices to investors of the conversion to web access and delivery, followed by repeated and periodic notices.  I am also pleased that the rulemaking staff has worked with the Office of the Investor Advocate and the Office of Investor Education and Advocacy to ensure that these notices are clear, prominent, and informative for investors.

[44] Form ADV is the form used by investment advisers to register with both the SEC and state securities regulators.  Beyond registration, Form ADV provides important information to the Commission—which can use such information to manage and assist its regulatory and examination programs of investment advisers, and to the public, who can use such information to determine whether to hire or retain an adviser.  See SEC Website, Form ADV, available at  In addition to the proposing amendments discussed in these remarks, today’s proposed amendments to Form ADV makes certain necessary technical,clarifying and other amendments to Form ADV to make the form work more effectively for all parties.  See Form ADV and Advisers Act Amendments Proposing Release, at Section II.a.4. Discussion/Proposed Amendments to Form ADV/Additional Information Regarding Investment Advisers/Proposed Clarifying, Technical and Other Amendments to Form ADV.

Form ADV consists of two parts.  Part 1 requires information about the investment adviser’s business, ownership, clients, employees, business practices, affiliations, and any disciplinary events of the adviser or its employees. The SEC reviews the information from this part of the form to process registrations and manage its regulatory and examination programs.  Investment adviser filings of Part 1 are also available to the public on the SEC’s Investment Adviser Public Disclosure (IAPD) website at

Part 2 of Form ADV requires investment advisers to prepare narrative brochures that contain information such as the types of advisory services offered, the adviser’s fee schedule, disciplinary information, conflicts of interest, and the educational and business background of management and key advisory personnel of the adviser.  Investment advisers must deliver annually Part 2 of Form ADV to their clients.  See SEC Website, Form ADV, available at

Today’s proposed rulemaking amendments, however, only impacts Part 1 of Form ADV.  Information on the most recent Form ADV filed by an investment adviser is available to the public through the Investment Adviser Public Disclosure System (“IAPD”), available at  

[45] In addition to the proposing amendments discussed in these remarks, today’s proposed amendments to Form ADV makes certain necessary technical,clarifying  and other amendments to Form ADV to make the form work more effectively for all parties.  See Form ADV and Advisers Act Amendments Proposing Release, at Section II.a.4. Discussion/Proposed Amendments to Form ADV/Additional Information Regarding Investment Advisers/Proposed Clarifying, Technical and Other Amendments to Form ADV.

[46] These are accounts an adviser manages that are not pooled investment vehicles like mutual funds or private funds.  See Form ADV and Advisers Act Amendments Proposing Release, at Section II.a.1. Discussion/Proposed Amendments to Form ADV/Information Regarding Separately Managed Accounts.  The amendments relating to separately managed accounts would require annual reporting of regulatory assets under management reported by asset type, borrowings, and derivatives information.  Specifically, the proposing amendments essentially split the borrowings and derivatives reporting obligation into two brackets: (i) advisers with at least $150 million to $10 billion in regulatory assets under management attributed to separately managed accounts; and (ii) advisers with more than $10 billion in such accounts.  The information required is incrementally more granular if the investment adviser has more than $10 billion in separately managed accounts, and these larger advisors would provide semi-annual data as well (although the data would still be reported on an annual basis).  The proposing amendments also would not require reporting of borrowings and derivatives for separately managed accounts of less than $10 million.  In addition, these amendments would require investment advisers to identify the custodians that account for at least 10% of separately managed account regulatory assets under management.  See id.

[47] In addition, among other things, today’s proposing amendments include requesting additional identifying information about the adviser, such as the adviser’s use of social media websites (e.g., Twitter or Facebook addresses), and additional information about the adviser’s offices other than its principal office or place of business.  See Form ADV and Advisers Act Amendments Proposing Release, at Section II.a.2. Discussion/Proposed Amendments to Form ADV/Additional Information Regarding Investment Advisers. 

[48] See Form ADV and Advisers Act Amendments Proposing Release, at Section II.a.3. Discussion/Proposed Amendments to Form ADV/Umbrella Registration.  In essence, advisers to private funds that are separate legal entities may be organized as a group of related advisers—or under a single “umbrella”—and effectively operate as a single advisory business.

[49] The Commission staff has in the past, provided staff guidance to permit these advisory collectives to file a single Form ADV, provided certain conditions are met.  See American Bar Association, Business Law Section, SEC Staff Letter (Jan. 18, 2012), available at also American Bar Association Subcommittee on Private Investment Entities, SEC Staff Letter (Dec. 8, 2005), Question G1, available at

[50] See Form ADV and Advisers Act Amendments Proposing Release, at Section II.b.1. Discussion/Proposed Amendments to Investment Advisers Act Rules/Proposed Amendments to Books and Records Rule.

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