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Investor Advisory Committee Opening Remarks

Chair Mary Jo White

Feb. 12, 2015

Good morning, and welcome to this year’s first meeting of the Investor Advisory Committee. Thank you all for making time in your busy schedules to be here. Today, I want to very briefly update you on a few recent developments at the Commission and give you a glimpse of some of what lies ahead in 2015. In the course of my summary, I will give a couple of updates on areas where the Committee has made specific recommendations to the Commission.

Rulemaking Agenda

The Commission has adopted several important rules since your last meeting in October. They span a spectrum of issues, including rules to address basic risks exposed by the financial crisis, rules updating our regulation of the technology that supports our markets, and rules to enhance issuers’ disclosures to investors.

In October, just after your last meeting, the Commission, jointly with other financial regulators, adopted rules to require credit risk retention — rules for the asset-backed securities market that will require securitizers to retain exposure to the credit risk of the assets they securitize so as to better align the incentives of securitizers with those of investors. These reforms build on the rules adopted by the Commission last August for new disclosure and other requirements for asset-backed securities offerings.

In November, the Commission adopted Regulation Systems Compliance and Integrity (“Regulation SCI”). Regulation SCI applies to exchanges, clearing agencies, FINRA, the MSRB, securities information processors, and alternative trading systems accounting for the bulk of equity trading on such systems. These important rules strengthen the resiliency of our critical market infrastructure by requiring those market participants most essential to the efficient functioning of the U.S. securities markets to have in place robust technology controls and promptly take corrective action when problems arise. The staff is also studying whether to make additional recommendations for other market participants.

In December, I announced that the staff in the Division of Investment Management is developing recommendations for Commission rulemaking to address the increasingly complex portfolio composition and operations of today’s asset management industry. Three of the core initiatives would modernize and enhance data reporting for both funds and investment advisers; require registered funds to have controls in place that identify and effectively manage the risks related to the composition of their portfolios, including liquidity and the use of derivatives in the portfolios; and require investment advisers to create transition plans to prepare for a major disruption in their business that could disable them from serving their clients.

In the first part of this year, the Commission adopted two important sets of rules, and proposed a third, under Title VII of the Dodd-Frank Act to bring about transparency in the over-the-counter derivatives market. As you know, this unregulated market has operated in the shadows for decades and has been cited as a major contributing factor of the financial crisis in 2008. The first set of rules we adopted established a comprehensive regulatory framework for security-based swap data repositories, which are the critical market infrastructure for centralized recordkeeping of all security-based swap data. The second set of rules establish a post-trade transparency and regulatory reporting regime designed to promote an efficient, competitive market and enable the Commission and other regulators to evaluate activities in the market that could harm investors or pose risks to the U.S. financial system. And the proposed rules would add certain requirements regarding the reporting and public dissemination responsibilities and provides a compliance schedule.

This month, as we announced Monday and as mandated by the Dodd-Frank Act, the Commission proposed rules to enhance corporate disclosure of company hedging policies for directors, officers and employees. The proposal would require disclosure about whether directors, officers and other employees are permitted to hedge or offset any decrease in the market value of equity securities granted by the company as compensation or held by employees or directors. The objective of increased transparency into hedging policies is to help investors better understand the alignment of their interests with the interests of directors, officers and other employees.

Looking forward a bit further into 2015, we will continue to work to complete our remaining Dodd-Frank and JOBS Act mandates, including the additional Title VII and executive compensation rulemakings under Dodd-Frank, as well as Regulation A and crowdfunding under the JOBS Act. We will also be busy in a number of other important areas, including, to name just a few, enhancements of our equity and fixed income market structure, the asset management initiatives I mentioned, our disclosure effectiveness review, and enhancing broker-dealer financial responsibility requirements.

The staff is also continuing its work in areas of other significant Committee recommendations, including whether to subject broker-dealers to a fiduciary standard when providing investment advice, obtaining sufficient funding for investment adviser examinations, enhancing the disclosure of risks in target date funds, and completing our review of the “accredited investor” definition. While significantly more is needed, one positive note is that we will be able to use funds we were appropriated for 2015 to hire some additional examiners, which will help increase our exam coverage of investment advisers. Our 2016 budget request also prioritizes this area and more is needed.

Other Developments

On January 13, 2015, the SEC announced the membership of our new Equity Market Structure Advisory Committee, which will focus on the structure and operations of the U.S. equities markets. The Committee’s members have expertise and diverse perspectives on our current equity market structure and will add to the valuable input the SEC receives from you and others on these issues, as we continue to move forward with our comprehensive review of equity market structure.

As I discussed at the last meeting, the Commission received in August a proposal from FINRA and the exchanges to implement a pilot program that will widen tick sizes for certain stocks. The Commission issued a notice of that proposal in November and the comment period closed in late December. The staff is evaluating the over 50 comments received, which will assist the Commission’s consideration of how to proceed with the proposed pilot program. The objective of the pilot is to assist the Commission in making informed policy decisions regarding trading in small capitalization stocks that balance the needs of both investors and small issuers. Thank you again for your efforts in this space, and I look forward to our continued engagement on this issue.

Next Thursday (on February 19th), precipitated by one of your recommendations, the Commission will host a roundtable to explore ways to improve the proxy voting process, focusing on universal proxy ballots and retail participation in the proxy process. More information about the roundtable is available on the SEC website.


Let me stop there. As usual, you have a very full agenda of important topics for today’s meeting and, as always, you have our deep appreciation for your work.

Thank you.

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