Tag: SEC rulemaking


Implications of the SEC’s Plans to Amend Rule 15b9-1

Annette Nazareth is a partner in the Financial Institutions Group at Davis Polk & Wardwell LLP, and a former commissioner at the U.S. Securities and Exchange Commission. The following post is based on an article by Ms. Nazareth and Jeffrey T. Dinwoodie that first appeared in Traders Magazine.

Annette Nazareth is a partner in the Financial Institutions Group at Davis Polk & Wardwell LLP, and a former commissioner at the U.S. Securities and Exchange Commission. The following post is based on an article by Ms. Nazareth and Jeffrey T. Dinwoodie that first appeared in Traders Magazine.

The overwhelming majority of SEC-registered broker-dealers must also be members of FINRA. Through a commonly overlooked exemption in SEC Rule 15b9-1, some broker-dealers that operate proprietary-only businesses are able to avoid FINRA regulation. The SEC recently voted to on a proposal to amend this rule on March 25.

While it is not clear whether the SEC will seek to eliminate the exemption or narrow its availability, the rulemaking could have important implications for firms currently relying on the exemption and, more broadly, for the ongoing market structure debate.

Let’s explore the history of this exemption and some of the possible implications of an SEC rulemaking.

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Preparing for the Regulatory Challenges of the 21st Century

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent remarks at the Georgia Law Review’s Annual Symposium, Financial Regulation: Reflections and Projections; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent remarks at the Georgia Law Review’s Annual Symposium, Financial Regulation: Reflections and Projections; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

During my tenure as an SEC Commissioner, our country’s economy has experienced extreme highs and lows. In fact, the country experienced the worst financial crisis since the Great Depression, followed by the current period of significant economic growth where the stock market has grown by around 165% from the low point of the financial crisis.

I have had a front-row seat to all of this, as I became an SEC Commissioner just weeks before the financial crisis hit our nation. As a result, I witnessed first-hand just how fragile our capital markets can be, and the need for a robust and effective SEC to protect them. First, let me provide a snapshot of what went on. I was sworn-in as an SEC Commissioner on July 31, 2008. Within a few weeks, on September 15, 2008, Lehman Brothers filed for bankruptcy. To give you a sense of its rapid decline, within 15 days, its share price went from $17.50 per share to virtually worthless. The demise of Lehman Brothers is often seen as the first in a rapid succession of events that led to an unimaginable market and liquidity crisis. These events included:

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The Role of Academics and Industry in Improving Equity Market Structure

Michael S. Piwowar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Piwowar’s recent remarks at the University of Notre Dame, Mendoza College of Business, Center for the Study of Financial Regulation; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Piwowar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Michael S. Piwowar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Piwowar’s recent remarks at the University of Notre Dame, Mendoza College of Business, Center for the Study of Financial Regulation; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Piwowar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today [March 13, 2015], I want to focus my remarks on the equities markets, and specifically equity market structure. Although it may be hard for some of you in this room to believe, in the 20 months since I began this job, some have suggested that I am a so-called “market structure expert.” While such comments are certainly flattering, I cannot accept the compliment. Of course, my academic research, my private and public sector experience, and my current role as a Commissioner at the Securities and Exchange Commission (“SEC” or the “Commission”) have all given me unique insights into the functioning of our equities markets. However, like many people in this room, I still consider myself a “student of markets.” With so many issues to examine and debate, and the continued evolution of the financial markets, I think we can agree there is more for all of us to observe and learn.

It has been fifteen months since I gave my first speech on equity market structure. Both before and since, my colleagues at the Commission have kept the issue of market structure in the forefront through their own public remarks. Congress also has been expressing keen interest in equity market structure, shining a bright light on the issue. And we have had some unsolicited prompting by a bestselling author, who, to put it lightly, does not have flattering things to say about the current state of the equity markets in what many refer to as simply “The Book.” Given all of this attention, I am frankly disappointed that we at the SEC have accomplished very little.

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Disentangling Mutual Fund Governance from Corporate Governance

The following post comes to us from Eric D. Roiter of Boston University School of Law.

The following post comes to us from Eric D. Roiter of Boston University School of Law.

Disentangling Mutual Fund Governance from Corporate Governance addresses mutual fund governance, explaining how in recent years it has become entangled with the norms and rules of corporate governance. At one level, it is understandable that mutual funds have been seen simply as a type of ordinary corporation, leading the SEC and the courts to treat mutual fund governance as simply a variation on the theme of corporate governance. Both mutual funds and corporations are separate legal entities, having directors and shareholders. Directors of each are held to fiduciary duties, charged with serving shareholders’ interests, and aspire to best practices. But there are fundamental differences between mutual funds and ordinary corporations, and this article contends that these differences have important implications for the governance of mutual funds, differences that should lead not to further entanglement of fund governance with corporate governance but to disentanglement.

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The Need for Greater Secondary Market Liquidity for Small Businesses

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s public statement at a recent meeting of the SEC Advisory Committee on Small and Emerging Companies; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s public statement at a recent meeting of the SEC Advisory Committee on Small and Emerging Companies; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

I am delighted to see that today’s [March 4, 2015] meeting will discuss the secondary trading environment for the securities of small businesses. The lack of a fair, liquid, and transparent secondary market for these securities is a longstanding problem that needs an effective solution. Indeed, I’ve spoken publicly about this very issue on a number of occasions, most recently less than two weeks ago at the annual SEC Speaks conference. This topic is increasingly urgent in light of certain new, or anticipated, Commission rules required by the JOBS Act that would result in a far wider range of small business securities needing to find liquidity in the secondary markets. Specifically, proposed rules under Regulation A-plus and Crowdfunding, and final rules under Rule 506(c) of Regulation D, would permit wide distributions of securities and also allow such securities to be freely-traded by security holders immediately upon issuance, or after a one-year holding period. These registration exemptions also provide—or are expected to provide—for lesser on-going reporting requirements than is required for listed securities.

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SEC’s Swaps Reporting and Disclosure Final Rules

The following post comes to us from Dan Ryan, Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP, and is based on a PwC publication by Troy Paredes, Samuel Crystal, and David Kim.

The following post comes to us from Dan Ryan, Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP, and is based on a PwC publication by Troy Paredes, Samuel Crystal, and David Kim.

On February 11, 2015, the Securities and Exchange Commission (SEC) released two final rules toward establishing a reporting and public disclosure framework for security-based swap (SBS) transaction data. The SEC’s Commissioners had voted in January to approve the rules, 3 to 2. [1] These rules are the SEC’s first substantive SBS requirements since the SEC began laying out its cross-border position through final rules in June 2014. [2] Chair White has consistently stressed the need to complete substantive SBS requirements and now appears willing to do so even when the SEC Commissioners are divided.

The SEC rules diverge from existing Commodity Futures Trading Commission (CFTC) requirements in some key ways. These divergences will create technical complexity for dealers who have built systems and processes to meet already live CFTC regulations. For example, the SEC’s broader, more exhaustive, and possibly repetitive scope of “Unique Identifier Codes” (UIC) will be problematic for market participants. A less obvious problem will be the SEC’s requirement to report SBS data within 24 hours (until modified by the SEC as the rule suggests), as dealers will likely want to delay public dissemination for as long as possible which will run counter to their existing set-ups for the CFTC requirement to report to a swap data repository (SDR) “as soon as technologically practicable.”

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Chairman’s Address at SEC Speaks 2015

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. This post is based on Chair White’s recent address at the Practising Law Institute’s SEC Speaks in 2015 Conference; the full text, including footnotes, is available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. This post is based on Chair White’s recent address at the Practising Law Institute’s SEC Speaks in 2015 Conference; the full text, including footnotes, is available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

By every meaningful measure, 2014 was a year of significant accomplishment across all of the agency’s areas of responsibility. The year was highlighted by the completion of several transformative rulemakings, including new policy reforms to address faults exposed during the financial crisis and initiatives to better address vulnerabilities in the resiliency and integrity of our markets. It was also an unprecedented year in enforcement, in terms of the number of cases and, more importantly, their subject matter. We made important strides in our review and action plans for optimizing the structure of our equity and fixed income markets, enhancing our risk supervision of the asset management industry and bolstering the effectiveness of public company disclosure. We also significantly strengthened our examination coverage of market participants. But, as always, we have more to do and expect a very busy 2015.

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Setting Forth Goals for 2015

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent address at the Practising Law Institute’s SEC Speaks in 2015 Conference; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent address at the Practising Law Institute’s SEC Speaks in 2015 Conference; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

During the past seven years, the SEC has taken action on a significant number of issues. There is little doubt, that these years have been one of the most active periods in SEC history. For example, during this period, the Commission voted on almost 250 rulemaking releases, both proposing rules and adopting final rules. Many of these rulemakings have been ground-breaking.

Still, even with all that activity, the SEC has not finished its work on many ongoing issues, such as the need to improve disclosures related to target-date funds and municipal securities. The Commission also has not completed many of its outstanding statutory mandates. I plan to use my time with you today [February 20, 2015] to lay out a few important priorities that the SEC should pursue in 2015 in order to move toward completing its outstanding work, to strengthen the Commission and do right by the public.

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A Fair, Orderly, and Efficient SEC

Michael S. Piwowar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Piwowar’s recent address at the Practising Law Institute’s SEC Speaks in 2015 Conference; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Piwowar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Michael S. Piwowar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Piwowar’s recent address at the Practising Law Institute’s SEC Speaks in 2015 Conference; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Piwowar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

I appreciate the opportunity to be here today [Feb. 20, 2015] with so many of the SEC staff, former SEC staff, and other members of the securities community. “SEC Speaks” provides us with the chance to reflect on all of the Commission’s accomplishments in the past year, which are the result of the hard work and dedication of the staff. At the same time, it is also an appropriate venue for considering what else we can do to effectively carry out our mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. I would suggest that the answer to how we can build upon the accomplishments of the past year is to apply the same objective that we have for the markets we regulate—that they be fair, orderly, and efficient—to ourselves. And so, I would like to discuss how we can make the SEC a more fair, orderly, and efficient agency.

Before going any further, lest you think that what I say necessary reflects the views of the Commission or my fellow Commissioners, I want to assure all of you that the views I express today are solely my own.

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Aligning the Interests of Company Executives and Directors with Shareholders

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today [February 9, 2015], the Commission issued proposed rules on Disclosure of Hedging by Employees, Officers and Directors. These congressionally-mandated rules are designed to reveal whether company executive compensation policies are intended to align the executives’ or directors’ interests with shareholders. As required by Section 955 of the Dodd-Frank Act, these proposed rules attempt to accomplish this by adding new paragraph (i) to Item 407 of Regulation S-K, to require companies to disclose whether they permit employees and directors to hedge their companies’ securities.

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