Beyond Disclosure at the SEC in 2016

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s recent address at SEC Speaks; the complete 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.

It is my pleasure to address the 45th annual “SEC Speaks” program—on the day after the Yankees’ pitchers and catchers reported to spring training, which is one way I mark this time of year. This event is another reminder of the season, an early-year conference for the staff, the private sector, and the Commissioners (present and former) to discuss current issues confronting the agency, investors, issuers, and the markets.

It is also a time to celebrate and recognize the tremendous efforts of our staff and those who have preceded them for their extraordinary public service to investors and our capital markets. Continuing a tradition, I would ask that every current member of the SEC staff please stand and be recognized. While the staff remains standing, let me ask that everyone who has ever served on the SEC staff or Commission, please also stand to be recognized. Think of these individuals when you think of the SEC’s important mission and public service at its finest.

It is also part of the tradition here for the Chairman’s address to talk about the state of the SEC and to highlight the agency’s accomplishments in the past year and to forecast the agenda for the coming year. There is much to report on all fronts, and I will try to capture at least the flavor of the volume and importance of what we accomplished in 2015 and what we are already advancing in 2016.

In the course of my remarks, I also want to step back and talk a bit about the bigger picture—my sense of how the SEC increasingly needs to go “beyond disclosure” as we carry out our tripartite mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation. While our all‑important disclosure powers are generally at the forefront of what we do, today’s ever-more complex markets—and the multitude of risks they face—require more of us. And our accomplishments and the agenda ahead reflect this changing landscape.

An Agenda for Fair and Strong Markets that Protect Investors

As we enter calendar year 2016, I am pleased that Congress increased our budget and that staff morale is high and continues to rise. At the moment, as you know, we are a Commission of just three members, but—as has occurred in the past—we can carry forward all of the business of the Commission. And, while we look forward to welcoming new colleagues, Commissioners Stein, Piwowar and I are fully engaged in advancing the Commission’s work. I want to thank them for their cooperation and hard work.

Last year was one of great accomplishment for the agency. Enforcement and our National Exam Program again had record years. Not only did we bring an unprecedented number of enforcement cases, secure an all-time high for orders directing the payment of penalties and disgorgement, and perform exams at a level not seen for the past five years, but we also continued to develop cutting‑edge cases and exams. Aided by enhanced technology to identify and analyze suspicious activity and strengthened by initiatives like self-reporting, our teams were able to identify and target the most significant risks for investors across the market. Areas of focus included cybersecurity, market structure requirements, dark pools, microcap fraud, financial reporting failures, insider trading, disclosure deficiencies in municipal securities offerings, and protection of retail investors and retiree savings.

The imperative of investor protection was also carried forward by tremendous efforts in all of our policy divisions and offices. The Division of Corporation Finance reviewed the annual and periodic reports of more than 4,400 issuers last year, helping to ensure that investors receive full and fair disclosure about the companies in which they invest. The Division of Trading and Markets reviewed more than 2,100 filings from exchanges and other self-regulatory organizations (SROs), standing guard for investors over major changes to the markets in which they entrust their savings. The Division of Investment Management reviewed filings covering more than 12,500 mutual funds and other investment companies, where the great majority of individual investors send their hard-earned money. And our economists in the Division of Economic and Risk Analysis produced more than 30 incisive papers and publications, including two major analyses to inform our work on asset management rules.

These numbers, of course, tell only a small part of the story. The Commission and the staff also engaged in many important exchanges with registrants and investors. The Office of Investor Education and Advocacy this year alone participated in more than 70 in-person events, while attracted more than 1.2 million new visitors and had more than 23.6 million page views of investor education content. That Office directly handled nearly 20,000 questions and complaints from investors, which were in addition to the 700 inquiries to our new Ombudsman. I too had the opportunity to get out and engage directly with individual investors this past year, including with members of our military at Fort Dix in New Jersey and with members of the National Diversity Coalition in Irvine, California.

These core activities in executing our mission as the investor’s advocate too often do not get the attention paid to our latest, high-profile rulemaking or enforcement action. But these day-to-day efforts are every bit as critical.

To be sure, the agency’s accomplishments on the rulemaking front over the last year were indeed remarkable. As you are all well aware—in no small part because I constantly remind everyone—since 2010, Congress has given the Commission nearly 100 statutory mandates for a wide range of complex rulemakings. And we have now executed the vast majority of them.

In 2015, with the adoption of Regulation A+ and Regulation Crowdfunding, we completed all of the major rulemakings directed by the JOBS Act. We also moved into the final phase of implementing the Dodd-Frank Act, focusing on the two major remaining areas of mandates: security-based swaps and executive compensation. We marked two key milestones in the first area: first, with the adoption of rules for reporting and disseminating security-based swap information; and second, with final rules for registering security-based swap dealers. We proposed a process for dealing with bad actors in the security-based swap market and adopted rules to help ensure that non-U.S. dealers participating in the U.S. market play by our rules. These reforms will give us powerful tools to oversee an $11 trillion market and provide investors with unprecedented transparency into trading that had long been dangerously opaque.

During the past year, we also issued proposals for the remaining executive compensation rulemakings required by the Dodd‑Frank Act, including disclosure of whether a company allows executives to hedge the company’s stock, disclosure of pay versus performance measures of executive compensation, and new disclosures and rules for clawing back incentive compensation erroneously awarded. And following the analysis of some 285,500 total comment letters, 1,500 of them unique, the final pay ratio rule was adopted in August 2015.

These accomplishments of the last year were, of course, only the latest in an historic undertaking by the agency to execute the most daunting rulemaking agenda in memory. Since I arrived at the agency in April 2013, we have stood up an entirely new regulatory regime for municipal advisors, and implemented sweeping changes in the securitization markets that were at the epicenter of the crisis. We significantly enhanced the rules for credit rating agencies, strengthened the rules for how broker-dealers handle customer funds and securities, disqualified bad actors from private offerings, removed credit rating references from our rules, and, through the Volcker Rule, restricted proprietary trading by financial institutions.

We will continue in 2016 to complete the remaining mandates. Of particular focus and priority will be to finalize the remaining security-based swap rules required of the SEC by Title VII of the Dodd-Frank Act, a goal supported by all of the Commissioners, so that the new regulatory regime can become operational. Just last week, we passed another key Title VII milestone, with the adoption of the last set of rules for cross-border dealer activity. Next in line will be to finalize the substantive requirements for security‑based swap dealers—in particular, the rules governing their business conduct and the requirements for their capital, margin, and asset segregation.

Importantly, throughout these efforts, we have also continued our discretionary rulemaking in areas that are essential to our mission of protecting investors and the markets. Three of the most prominent of these initiatives that I have directed center on the asset management industry, the structure of the equity markets, and our disclosure regime. Each of these initiatives was marked by Commission action in 2015, and I expect additional actions this year.

First, asset management. After adopting final rules for fundamental reforms to the money market fund industry, we turned to executing the broad-based program I outlined in December 2014 to address the increasingly complex portfolios and operations of mutual funds and ETFs. In May, we proposed enhanced reporting for investment advisers and mutual funds to improve the quality of information that the Commission and investors receive. For the first time, funds would be required to report basic risk metrics, and new information would be required about, among other things, their use of derivatives, securities lending activities, and liquidity of their holdings.

In September 2015, the Commission proposed reforms designed to promote stronger and more effective liquidity risk management across open-end funds and limit the adverse effects that liquidity risk can have on investors and potentially the broader markets. And in December, the Commission approved an important proposal requiring that funds monitor and manage derivatives-related risks and provide limits on their use. Finalizing these rules, as well as advancing proposals for transition planning and stress testing, are among our 2016 priorities for the asset management industry.

In equity market structure, as the Commission considers more fundamental changes, we continue to address specific elements that can be made to work better for investors and public companies. In 2015, the Commission proposed two important rules to enhance our supervision of today’s markets. The first of these would broaden the oversight of active proprietary traders, including high-frequency traders. We also proposed the first-ever major update to the regulations for alternative trading systems. Our proposal would require new detailed disclosures about the operation of these platforms and create a new process for Commission oversight of them. We will look to finalize these rules in 2016 and to advance others, including enhancements to order routing disclosures and to the risk controls on trading algorithms.

Important work also continued on strengthening the infrastructure of the equity markets and the mechanisms for ensuring market stability. In December, the Commission issued an advance notice of proposed rulemaking on transfer agents, the first major action in that important area in more than 40 years. The SROs continued to advance a broad program of improvements to the securities information processors and volatility safeguards, including evaluating the operation of the limit up-limit down plan under various market conditions, such as the volatility that occurred on August 24th. And the SROs submitted their plan for the very important consolidated audit trail, a high priority that I expect the Commission will soon notice for comment.

We also continue to evaluate other fundamental proposals for change, looking to data and empirical analysis to guide us. One example is the Tick Size Pilot for smaller companies, which the SROs are actively implementing and which is scheduled to begin in the fall. And our equity market structure advisory committee continues to provide valuable input to the Commission on a range of other complex market structure issues.

The staff’s review of disclosure effectiveness will also actively continue in 2016. In 2015, the Commission published its first request for comment on what investors, companies, and market participants would like to see with respect to the form and content of financial statement disclosures by entities other than the registrant under Regulation S-X. I expect that this step will soon be followed by several others addressing Regulation S-K and the industry guides. Such work will also complement and serve to further implement the mandates we received last year under the FAST Act to simplify and modernize our disclosure requirements for public companies.

In 2016, beyond these three core areas, we will also look to shorten the settlement cycle from T+3 to T+2 to support industry efforts and reduce a potential source of systemic risk. We will seek to further enhance filings through the expanded use of structured data. We will aim to finalize rules updating the intrastate offering exemption and consider recommendations for a universal proxy. We will also look to consider final rules for resource extraction. In enforcement, we will focus on financial reporting, market structure, and the structuring, disclosure, and sales of complex financial instruments. And I will continue to work to develop support from my fellow Commissioners for a uniform fiduciary duty for investment advisers and broker‑dealers, and to bring forward a workable program for third party reviews to enhance the compliance of registered investment advisers.

As you can hear from my partial recitation, the agenda for 2016 is a very busy one and we will work hard to advance as many of these priorities as we can.

Beyond Disclosure

Although it is a subject for more extensive discussion on another day, let me step back for a moment from the array of rules, accomplishments, and agenda setting that I have marched through today to highlight how we are looking beyond mandatory disclosure—still our core authority and lodestar—to carry out our mission. For, in the modern marketplace, the SEC is increasingly challenged to look to carefully targeted substantive requirements—like controls on technology or limitations on activities—to fully discharge our responsibilities.

While the SEC is often referred to as “a,” or “the,” disclosure agency, it is important to recognize that we are not only a disclosure agency—and never have been. At inception, the Exchange Act granted us extensive substantive authority to regulate the means of trading securities, including broad supervisory authority over stock exchanges and controls on trading practices. The Investment Company Act of 1940 similarly created a series of substantive requirements for registered funds. And our original authorities have been, from time to time, expanded by Congress.

Today, among other responsibilities, the Commission sets financial standards for broker-dealers, reviews the rule filings by exchanges and other SROs, supervises the clearing of securities, and oversees the Public Company Accounting Oversight Board. The Dodd-Frank Act gave us the responsibility to oversee security-based swaps and required us to restrict proprietary trading, mandate risk retention for securitizers, and limit incentive-based compensation for financial institutions.

As we gather here in February 2016, it is important to recognize that authorities such as these have become more important to our mission as the complexity of the marketplace has increased, as technology has brought down barriers to investment, and as financial market participants have become ever-more connected.

You can see this progression in a number of our recent regulatory reforms. For example, the now‑effective Regulation SCI—or Systems Compliance and Integrity—imposes requirements for systems controls and technology standards that are essential to the operation of the modern securities markets. The money market fund reforms coming on line in October of this year go well beyond enhancing disclosure and require prime funds to float their NAV after years of a fixed NAV. Regulation A+ and our new crowdfunding rules outline the disclosures required of startups and small businesses raising capital in new ways, but also impose investment limits to strengthen investor protections.

Looking ahead, a number of the Commission’s outstanding proposals and initiatives also reflect the careful consideration of tools beyond disclosure. Aspects of our asset management proposals would impose minimum liquidity requirements and limits on derivatives in addition to greater and more standardized disclosures. While the outstanding proposal for alternative trading systems requires greater investor disclosure, it also provides the Commission with better tools to supervise changes in their operation. Our proposal for clearing agencies would impose new standards for their governance and operation—a particularly important set of requirements given their central role in the securities and derivatives markets today.

In all of our work, we are challenged to look at how our other tools can complement disclosure to better carry out our regulatory objectives. Disclosure is one tool among many, and we need to use the right tools for the right job, whether in overseeing the range of growing and more complex ETFs, in considering changes to the “accredited investor” definition, or in fashioning appropriate requirements and protections for today’s complex asset management industry. And we are seeking robust public comment and input as we do so.

Let me be clear that considering and using other policy tools to strengthen our regulatory regime does not reflect a retreat from our core disclosure powers. Quite to the contrary, enhancing relevant disclosures continues to be a key aspect of all of our new rulemakings—and we are dedicating substantial resources to enhance the effectiveness of our existing disclosure requirements. But more and more, the complexity of products, changes in market participant behavior, pervasive network technology, and systemic risks call for additional protections beyond those that can be achieved through disclosure alone. We are therefore increasingly considering using measures beyond disclosure to fulfill our mission of providing strong investor protection, safeguarding market integrity, and achieving other regulatory objectives.


The capital markets play a critical role in our economy. They are built on taking informed risks in exchange for potential returns on investments that can be used to buy a home, pay for college, and fund a retirement. The capital markets fuel not only macroeconomic growth, but also critical innovations—from new cancer treatments to advanced computers to breakthroughs in agriculture. Risk-taking is essential to this process, and regulators should not seek to eliminate it altogether.

But regulators must safeguard the investment and capital raising process from unacceptable risks that can dilute, distort, or disable the fair playing field that is integral to robust free financial markets. In 1934, just two days after he signed the Securities Exchange Act, President Franklin D. Roosevelt told Congress, “We have sought to put forward the rule of fair play in finance and industry.” That is the core responsibility we carry forward today.

The SEC—and most especially its extraordinary dedicated and talented staff—has the vision, the energy and tools to adapt to the challenges of 2016 and beyond. You will see that on display over the next two days and should always remember that the accomplishments we talk about at “SEC Speaks” each year—indeed, for eight decades—are due to the staff’s tireless commitment and expertise.

Coming from New York, as you might imagine I am used to hearing all sorts of things, including many that I cannot repeat in public. But I have heard a few new phrases in Washington—things like “don’t ever let the law get in the way of what you want to do politically” or “that’s just how Washington works.” Fortunately, such thoughts get no traction at the SEC—and never have. From its founding, the SEC has been an independent agency with a proud, unbroken tradition of protecting the investing public based on hard work and hard data, carrying out our dynamic mission without fear or favor according to the rule of law. That was true in 1934, it is true today, and it will be true when SEC Speaks gathers eight decades from now.

Thank you.

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The complete publication, including footnotes, is available here.


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