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Opening Remarks to the Investor Advisory Committee

Chair Mary Jo White

Oct. 15, 2015

Good morning and welcome.  Thank you all for being here.  I would like to welcome our new members to the committee, Bill Lee, Lisa Fairfax, and Matt Furman.  Thank you for agreeing to serve.  Having strong members on this committee with varying perspectives and experience is what makes it such a strong and useful committee.

Rulemaking Update

I thought I would quickly report to you on two fronts – my customary rulemaking and other initiatives update since your last meeting and then give you a very high-level perspective on the Commission’s continuing analysis of ETPs, including how they operated on August 24th.

We have continued to make progress on a number of rulemakings of interest to you.  In August, we adopted the “pay ratio” disclosure rule and earlier completed proposals on all of the remaining Dodd-Frank executive compensation rules, specifically, the pay for performance and clawback rules.

In the Title VII area, we adopted final rules for registering security-based swap dealers and issued two additional proposals as important steps toward completion of those rules for security based swaps.

We have also been busy on the asset management front.  In May, the Commission proposed rules to modernize reporting by investment companies and advisers, and in September proposed rules designed to promote effective liquidity risk management throughout the open-end fund industry.

In September, the Commission also finalized the rules to remove credit rating references and to amend the issuer diversification requirement in the money market fund rule.  We also issued a concept release in July on audit committee disclosures and a request for comment on certain financial disclosures required under Regulation S-X in September seeking input on whether and how the disclosure requirements could be revised to better inform investors.

August Market Volatility and Exchange Traded Products

I would like to turn now briefly to the volatility experienced in our markets on August 24 and our current efforts related to exchange traded products.  These issues are important ones, and well worth the time they will take on your agenda today.

As you know, the equity markets opened sharply lower on the morning of August 24th, following a period of declining prices in U.S. and non-U.S. markets.  As a result of the rapid decline, a primary volatility moderator -- the limit-up/limit-down mechanism -- triggered trading pauses in a number of securities, many of which were ETPs.  In addition to the trading pauses, it appears that some ETPs traded at sharp discounts to their NAVs.

These two issues -- the operation of the limit-up limit-down mechanism and the quality of ETP pricing in the secondary market -- have been and continue to be of interest to the Commission.  As you know, the limit-up limit-down mechanism is currently operating on a pilot basis.  This pilot period is designed to provide the Commission with sufficient data to evaluate how the plan operates in a variety of market conditions.  The SROs and Commission staff are studying its operation, including how it operated on August 24.  This analysis will inform the Commission’s evaluation of the plan and any necessary amendments to its operation before considering it for approval on a permanent basis.

The Commission is also paying close attention to pricing issues in ETPs, a product class that has proliferated in recent years.  Pricing was one among many issues related to the listing and trading of ETPs that were covered by our recent request for comment.  Among other things, we requested comment, for example, on whether certain characteristics of ETPs impact the alignment of ETP market prices with values of their underlying assets, whether arbitrage mechanisms promote efficient ETP prices in times of market stress, and the circumstances that could cause ETP prices to deviate from the value of the underlying assets.  The comment period closed on August 17 and the staff is closely reviewing those.

In addition, staff across the agency -- led by the Division of Economic and Risk Analysis and the Division of Trading and Markets -- are continuing to evaluate trading data regarding August 24.  Among other things, we are exploring whether the behavior of ETPs can be explained by uncertainty in pricing of the underlying assets, the nature of liquidity demand and supply for ETPs, and/or the low trading volume in many individual ETPs.

I welcome the Committee’s attention to these issues and I look forward to hearing your perspectives on both August 24 and the broader questions about ETPs.


The work of this Committee continues to produce important views on these issues and many others, and your efforts remain a critical voice in the development of the rules and other policies that the Commission pursues.  Thank you for your continued dedication and hard work.

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