SEC Rulemaking Over the Past Year, the Road Ahead and Challenges Posed by Brexit, LIBOR Transition and Cybersecurity Risks

Jay Clayton is Chairman of the U.S. Securities and Exchange Commission. This post is based on Chairman Clayton’s recent public statement, available here. The views expressed in this post are those of Mr. Clayton and do not necessarily reflect those of the Securities and Exchange Commission or its staff.

Thank you Jason [Healey] for that kind introduction. [1]

For many, December is a time to reflect on the past year and to look forward to what the New Year may bring. I believe organizations also should mark milestones, take stock of what has been done and what needs to be done, and adjust course accordingly.

My colleagues at the Commission and I go through this exercise relatively frequently, including to fulfill statutory reporting requirements—yes, like the public companies we regulate, we too have disclosure obligations.

In the past few months, we published a new, four year strategic plan and our annual report for fiscal year 2018. [2] We also participate in the annual report process for the Financial Stability Board and the Financial Stability Oversight Council. [3] In addition, our divisions and offices undertake similar reviews and, in some cases—notably, the Division of Enforcement and the Office of Compliance Inspections and Examinations—publish an annual report and exam priorities, respectively. [4]

Today [December 6, 2018], I would like to go through this exercise with respect to our rulemaking efforts. I will review our progress on the agenda for 2018, then discuss the agenda for 2019, and close with observations on certain of the key risks that we are monitoring—namely, Brexit, the LIBOR transition and cybersecurity risks.

Approach to the 2018 Regulatory Agenda and Review of Our Progress

We are required to publish a regulatory agenda on a semi-annual basis pursuant to the Regulatory Flexibility Act. [5] One year ago, I spoke about my perspective on this process, including the observation that the near-term portion of our “Reg Flex” agenda—in essence, the rulemaking expected to be completed in the coming year—had become too aspirational. [6] For example, 32 rules were listed as to-be-adopted in 2016, but less than 30 percent of the listed rules were adopted in that year. I believe this aspirational approach was driven in large part by the more than 80 rulemakings and the more than 30 reports and studies that the Dodd-Frank Act required the SEC to complete. [7] I thank my predecessors for tackling the lion’s share of those. [8]

Recognizing the opportunity to recalibrate, the 2018 Reg Flex agenda was more focused than in the past—a change made to increase transparency and accountability, as well as to provide greater clarity to our dedicated staff. [9] The agenda embodied a collective effort, benefiting from the input of my fellow Commissioners, our division and office heads and many members of our staff on key questions, including: (1) what initiatives the agency could reasonably expect to complete over the next 12 months and (2) of those initiatives, which ones would have the most positive impact on our Main Street investors. This exercise produced a tailored yet ambitious 2018 agenda, encompassing 26 different initiatives covering a broad array of topics.

During the last year, the Commission advanced 23 of the 26 rules in the near-term agenda, a good result on both a percentage basis (88percent) and an absolute basis. [10]

In addition, the Commission responded to major events and changes in the broader regulatory landscape by advancing several other initiatives not in the original agenda. For example, we issued guidance to public companies about disclosures of cybersecurity risks and incidents. [11] During the 2018 fiscal year, we also responded to a new congressional mandate by expanding a key registration exemption used by non-reporting companies to issue securities pursuant to compensatory arrangements, [12] and we provided relief for those affected by Hurricane Florence. [13]

To be sure, statistics often fail to tell more than a narrow story. Main Street investors—the market participants we have at the front of our minds—will not assess our work by the number or percentage of rules and initiatives we complete, but rather will be looking at what our efforts substantively do for them. With this metric—the interests of our long-term Main Street investors—in mind, I will discuss a few examples of our work in 2018.

Improving Our Approach to the Regulation of Investment Professionals

In April, the Commission proposed for public comment a collection of rules and interpretations applicable to investment professionals—both broker-dealers and investment advisers. [14] These proposals, individually and collectively, are designed to enhance retail investor protection and decision making by elevating the broker-dealer standard of conduct and reaffirming—and in some cases clarifying—the fiduciary standard for investment advisers, as well as requiring more candid and plain language disclosures. Using plain language, we are bringing the regulation of conduct and communications in line with the reasonable expectations of our Main Street investors. More specifically, the proposed rules seek to accomplish three things:

  1. require broker-dealers to act in the best interest of their retail customers, by expressly requiring that the investment professional not place her or his interests ahead of the interests of the client;
  2. reaffirm, and in some cases clarify, the fiduciary duty owed by investment advisers to their clients; and
  3. require both broker-dealers and investment advisers to state clearly key facts about their relationship, including their financial incentives.

Importantly, the proposed rules are designed to preserve retail investor access—in terms of choice and cost—to a variety of types of investment services and investment products, while giving investors the tools to select the type of relationship that is appropriate for their needs and in line with their expectations.

This is a very important and long overdue initiative.

Broker-dealers and investment advisers both provide investment advice to their customers, but have different relationships and are subject to various different regulatory regimes. However, many retail investors do not have a firm grasp of the important differences between broker-dealers and investment advisers—(1) differences in the variety of services that they offer; (2) how investors pay for those services; and (3) the regulatory frameworks that govern their relationship. This is a complex set of issues, no doubt, but we must also recognize that access to investment advice is increasingly important to our society. And we must recognize that while the current framework needs improvement, it is extensive and in many areas functions well for our Main Street investors, particularly as compared to other jurisdictions.

Facilitating Capital Formation

Second, with respect to capital formation, the Commission took several meaningful steps throughout 2018 to help companies—including small companies—participate in our capital markets, while maintaining or improving important investor protections. For example, the Commission expanded the definition of “smaller reporting company.” [15] The amended definition will allow nearly 1,000 additional companies to take advantage of scaled disclosure requirements, reflecting the principle that a one-size regulatory structure does not fit all public companies.

The Commission also adopted final rules that eliminate requirements that are outdated, overlapping, or duplicative of other Commission rules or U.S. GAAP. These amendments will reduce costs for companies. Importantly, they will not adversely affect the availability of material information and, in many cases, they will enhance the quality of information available to investors. Combined, our capital formation initiatives make the option for issuers to join our public markets more attractive, ultimately to the benefit of Main Street investors, many of whom are searching for additional investment options.

Monitoring and Reacting to Our Evolving Securities Markets

We also have been monitoring our markets and market structure to evaluate whether they are meeting the needs of our Main Street investors.

For example, I have long believed that there should be greater regulatory focus on our fixed income markets, particularly the corporate and municipal bond markets. [16] These markets are particularly significant to retail investors, as well as American companies and our national infrastructure. To facilitate that effort, we stood up the Commission’s Fixed Income Market Structure Advisory Committee—or “FIMSAC” as many people call it. [17] FIMSAC—which is made up of a diverse group of experts from across the country—had a highly productive first year. The Committee held four insightful public meetings and has provided the Commission with five thoughtful recommendations on ways to improve our fixed income markets. [18] I look forward to an equally successful second year for the FIMSAC.

We are also focusing on other aspects of our securities markets. Our Division of Trading and Markets held three roundtables this year to explore key markets issues, particularly: (1) the market structure for the securities of smaller, more-thinly traded companies; (2) regulatory approaches to combating retail fraud; and (3) access to markets and market data. The roundtables were candid and constructive, and staff in our Division of Trading and Markets is busy analyzing issues raised at the roundtables.

Speaking of our markets, we know that transparency is a bedrock of healthy and vibrant markets. I am pleased to report that we have also taken significant steps to make our markets more transparent. For example, in July, we adopted amendments that enhance the transparency requirements governing alternative trading systems, commonly known as “ATSs.” [19] These amendments provide investors, brokers and other market participants—and the Commission—with increased visibility into the operations of these important marketplaces for equity trading. [20]

These amendments are a credit to our staff’s careful attention to market developments and needs and reflect my view that, since markets are constantly changing, we must regularly and critically evaluate our approach to regulation. [21]

Significant Initiatives for 2019

Whatever our accomplishments in the past year, our work is far, far from complete. That reality comes with the territory of ever changing capital markets. The near-term agenda for completion in 2019 is now publicly available. [22] Continuing with the themes of transparency, accountability and clarity of mission, the “Reg Flex” agenda for 2019 focuses on the initiatives we reasonably expect to complete. [23] I hope to have a blackline similar to the 2018 agenda—with 80 percent or more strikethroughs—a year from now. I will now discuss a few priority items for 2019.

Completing our Work on Rules Relating to the Standards of Conduct for Financial Professionals

Completing our rules relating to the standards of conduct for financial professionals is a key priority.

Since the April 2018 proposal, we have engaged with Main Street investors across the United States to discuss their experiences. SEC staff organized a series of seven roundtables around the country, providing Main Street investors an opportunity to speak directly with me, my fellow Commissioners and senior SEC staff—all in an effort to improve the proposed rules. [24] It is clear, based on these discussions, that we have the right perspective, namely, that the core obligations of investment professionals—and mandatory plain language disclosures—should match reasonable investor expectations.

The efforts of the SEC staff to deliver for Main Street investors in this important area have been exemplary. In addition to the investor roundtables, we launched a new webpage where investors can view samples of the proposed disclosure form and submit feedback. [25] The SEC’s Office of the Investor Advocate engaged the RAND Corporation to conduct investor testing of the proposed disclosure form and has made the report available for review and public comment. [26] Our staff has been carefully reviewing all of this information, and the more than 6,000 comment letters, [27] as they work diligently to develop final recommendations.

Proxy Process

Another significant initiative for 2019 is improving the proxy process. Last month, the SEC staff held a proxy roundtable to discuss: (1) the proxy solicitation and voting process; (2) shareholder engagement through the shareholder proposal process; and (3) the role of proxy advisory firms. [28]I was pleased with this solutions-oriented event, which included a diverse group of panelists representing the views of investors, companies and other market participants. While we heard a wide range of views, we saw more agreement than disagreement, and I believe that we should act to improve each of these areas.

There was consensus among the panelists that the proxy “plumbing” needs a major overhaul. I encourage market participants to explore what such an overhaul would entail and to consider how technology, including distributed ledger technology, could improve the proxy plumbing. I realize a major overhaul could take time. So, I believe we should focus on what the Commission can do in the interim to improve the current system. The comment box for the roundtable remains open, and I encourage all those interested in improving the proxy plumbing to share their thoughts, particularly regarding actionable, interim improvements.

I also believe it is clear that we should consider reviewing the ownership and resubmission thresholds for shareholder proposals. The current $2,000 ownership threshold was adopted 20 years ago, and the resubmission thresholds have been in place since 1954. A lot has changed since then. We need to be mindful of these changes, and make sure our approach to the very important issue of shareholder engagement reflects the realities of today’s markets and today’s investors. As I have said before, when looking at the ownership and resubmission thresholds, we need to consider the interests of the long-term retail investors who invest directly in public companies and indirectly through mutual funds, ETFs and other products. With these long-term, retail investors in mind, we also should consider whether there are factors, in addition to the amount invested and the length of time shares are held, that reasonably demonstrate that the proposing shareholder’s interests are aligned with those of a company’s long-term investors.

For proxy advisory firms, I believe there is growing agreement that some changes are warranted. For example, there should be greater clarity regarding the division of labor, responsibility and authority between proxy advisors and the investment advisers they serve. We also need clarity regarding the analytical and decision-making processes advisers employ, including the extent to which those analytics are company- or industry-specific. On this last point, it is clear to me that some matters put to a shareholder vote can only be analyzed effectively on a company-specific basis, as opposed to applying a more general market or industry-wide policy.

Finally, there were other issues raised at the roundtable that we should consider, including: (1) the framework for addressing conflicts of interests at proxy advisory firms and (2) ensuring that investors have effective access to issuer responses to information in certain reports from proxy advisory firms.

The staff is looking at these and other issues, and I have asked them to formulate recommendations for the Commission’s consideration. On timing, it is clear to me that these issues will not improve on their own with time, and I intend to move forward with the staff recommendations, prioritizing those initiatives that are most likely to improve our markets for our long-term Main Street investors.

Capital Formation and Access to Investment Opportunities

Main Street investors, now more than ever before, are responsible for saving for retirement. Earlier this year, staff in our Office of Investor Education and Advocacy issued a bulletin to warn investors of risks associated with self-directed Individual Retirement Accounts, or IRAs. [29] With the shift away from traditional defined benefit pension plans, American workers are increasingly relying primarily on defined contribution plans, such as 401(k) plans and IRAs, to save for retirement. [30]We owe it to these investors to make sure they have access to a broad mix of investment opportunities to save for retirement and to achieve other financial goals. Accordingly, we are looking at initiatives to facilitate access to capital for issuers and to make sure Main Street investors have the best possible mix of investment opportunities.

Several of these initiatives parallel congressional legislation that received substantial bipartisan support. For example, the so-called JOBS Act 3.0 includes provisions to expand testing-the-waters and study our quarterly reporting regime. [31] Both of these initiatives are included on the agenda for 2019 rulemaking—in addition to other Congressionally-directed rulemakings relating to expanding Regulation A for public reporting companies.

To explore further whether we can improve the mix of investment opportunities for Main Street investors, the Division of Corporation Finance is looking at the private offering framework. Our “patchwork” private offering system is complex and it is time to take a critical look to see how it can be improved, harmonized and streamlined. The staff is working on a concept release to solicit input about key topics, including whether our accredited investor definition—a principal regulatory threshold for participation in private offerings—is appropriately tailored to address both investment opportunity and investor protection concerns.

Encouraging Long-Term Investment

I also believe it is important to consider ways to encourage long-term investment in our country. There is an ongoing debate regarding the adequacy and appropriateness of mandated quarterly reporting and the prevalence of optional quarterly guidance, and whether our reporting system more generally drives an overly short-term focus. I encourage all market participants to share their views to let us know if there are other aspects of our regulations that drive short-termism.

Distributed Ledger Technology, Digital Assets and Initial Coin Offerings

Another area where the Commission and staff have spent a significant amount of time relates to distributed ledger technology, digital assets and initial coin offerings (ICOs). [32] I expect that trend will continue in 2019. A number of concerns have been raised regarding the digital assets and ICO markets, including that, as they are currently operating, there is substantially less investor protection than in the traditional equities and fixed income markets, with correspondingly greater opportunities for fraud and manipulation.

I believe that ICOs can be effective ways for entrepreneurs and others to raise capital. However, the novel technological nature of an ICO does not change the fundamental point that, when a security is being offered, our securities laws must be followed.

In an effort to centralize and better coordinate the staff’s work on these important issues, the SEC recently announced the formation of a new Strategic Hub for Innovation and Financial Technology (“FinHub”) within the agency. Staffed by representatives from across the Commission, the FinHub serves as a public resource for fintech-related issues at the SEC. [33] As the FinHub and our other activities demonstrate, our door remains open to those who seek to innovate and raise capital in accordance with the law.

Market Risks

Before closing, I want to briefly discuss three of the risks we are monitoring: (1) the impact to reporting companies of the United Kingdom’s exit from the European Union, or “Brexit”; (2) the transition away from LIBOR as a reference rate for financial contracts; and (3) the principal topic of the following panel, cybersecurity.

Brexit

First, the potential effects of Brexit on U.S. investors and securities markets, and on global financial markets more broadly, is a matter of increased focus for me and many of my colleagues at the SEC. To be direct, I am concerned that:

  1. The potential adverse effects of Brexit are not well understood and, in the areas where they are understood, are underestimated. [34]
  2. The actual effects of Brexit will depend on many factors, some of which may prove to be beyond the control of the U.K. and E.U. authorities.
  3. Our markets, at many levels—from multinational companies, to market infrastructure, to investment products and services—are international, and the effects of Brexit will be international, including on U.S. markets and our Main Street investors.
  4. The actual effects of Brexit are likely to manifest themselves in advance of implementation dates and, based on corporate disclosures, some of those effects are upon us.
  5. The actual effects of Brexit will depend in large part on the ability of U.K., E.U. and E.U. member state officials to provide a path forward that allows for adjustment without undue uncertainty, disruption or cost. That is a tall order that I believe requires: (a) a broad understanding of market interdependencies—knowledge that goes well beyond the labor and financial markets; (b) foresight—people and firms will act in their own interests and the interests of their shareholders; and (c) flexibility—miscalculations are inevitable and will need to be addressed promptly. More generally, limiting the adverse effects of Brexit requires a willingness of governmental authorities to look beyond potential immediate, local economic and other opportunities provided by a blunt transition and pursue a course that focuses on broad, long-term economic performance and stability. While many involved in the Brexit process agree with this perspective, and some important steps have been taken, [35] I do not yet see wide acceptance of this principle.

To be clear, these are my personal views, but it is appropriate to share them as they are reflective of the SEC’s approach to Brexit. The SEC’s responsibility is primarily related to the effects of Brexit on our capital markets. For example, I have directed the staff to focus on the disclosures companies make about Brexit and the functioning of our market utilities and other infrastructure.

We have seen a wide range of disclosures, even within the same industry. Some companies have fairly detailed disclosures about how Brexit may impact them, while others simply state that Brexit presents a risk. I would like to see companies providing more robust disclosure about how management is considering Brexit and the impact it may have on the company and its operations.

With regard to market utilities and infrastructure, following the 2016 Brexit vote, SEC staff commenced discussions with other U.S. financial authorities, with our U.K. and E.U. counterparts, and with market participants, all with an eye toward identifying and planning for potential Brexit-related impacts on U.S. investors and markets. These discussions are ongoing, and I expect their pace to increase.

Transition Away from LIBOR

The second risk that I want to highlight relates to the transition away from LIBOR as a benchmark reference for short-term interest rates. LIBOR is used extensively in the U.S. and globally as a benchmark for various commercial and financial contracts, including interest rate swaps and other derivatives, as well as floating rate mortgages and corporate debt. It is likely, though, that the banks currently reporting information used to set LIBOR will stop doing so after 2021, when their commitment to reporting information ends. The Federal Reserve estimates that in the cash and derivatives markets, there are approximately $200 trillion in notional transactions referencing U.S Dollar LIBOR and that more than $35 trillion will not mature by the end of 2021. [36]

The Alternative Reference Rate Committee (or “Committee”)—a committee convened by the Federal Reserve that includes major market participants, and on which the SEC staff and other regulators participate—has proposed an alternative rate to replace U.S. Dollar LIBOR—the Secured Overnight Financing Rate, or “SOFR.” The Committee has identified benefits to using SOFR as an alternative to LIBOR. For example, SOFR is based on direct observable transactions. SOFR is based on a market with very deep liquidity, reflecting overnight Treasury repurchase agreement transactions with daily volumes regularly in excess of $700 billion.

A significant risk for many market participants—whether public companies who have floating rate obligations tied to LIBOR, or broker-dealers, investment companies or investment advisers that have exposure to LIBOR—is how to manage the transition from LIBOR to a new rate such as SOFR, particularly with respect to those existing contracts that will still be outstanding at the end of 2021. Accordingly, although this is a risk that we are monitoring with our colleagues at the Federal Reserve, Treasury Department and other financial regulators, it is important that market participants plan and act appropriately.

For example, if a market participant manages a portfolio of floating rate notes based on LIBOR, what happens to the interest rates of these instruments if LIBOR stops being published? What does the documentation provide; does fallback language exist and, if it exists, does it work correctly in such a situation? If not, will consents be needed to amend the documentation? Consents can be difficult and costly to obtain, with cost and difficulty generally correlated with uncertainty.

In the area of uncertainties, we continue to monitor risks related to the differences in the structure of SOFR and LIBOR. SOFR is an overnight rate, and more work needs to be done to develop a SOFR term structure that will facilitate the transition from term-based LIBOR rates. [37]

To be clear, a lot of progress has been made to facilitate the transition from LIBOR to SOFR. We have started to see more SOFR-based debt issuances, and we have seen promising developments in the SOFR swaps and futures markets. [38] But I want to make sure that market participants are aware of the need to plan for this important transition, as a lot of the work will fall on them.

Cybersecurity

The third risk I want to touch on is cybersecurity. Cybersecurity is something that we at the agency look at from a number of perspectives.

From an issuer disclosure perspective, it is important that investors are sufficiently informed about the material cybersecurity risks and incidents affecting the companies in which they invest. Earlier this year, the Commission issued interpretive guidance to assist public companies in preparing these types of disclosures. [39] The guidance also emphasized the importance of disclosure controls and procedures that enable public companies to make accurate and timely disclosures about material cybersecurity events, as well as policies that protect against corporate insiders trading in advance of company disclosures of material cyber incidents.

From a market oversight perspective, we continue to prioritize cybersecurity in our examinations of market participants, including broker-dealers, investment advisers and critical market infrastructure utilities. In assessing how firms prepare for a cybersecurity threat, safeguard customer information, and detect red flags for potential identity theft, for example, we have focused on areas including risk governance, access controls, data loss prevention, vendor management and training, among others. And given the interconnectedness of our markets, we will continue to work closely with our counterparts at other federal financial regulatory agencies and the international community.

We also are focused on assessing and improving our own cybersecurity risk profile. We now have a Chief Risk Officer to help coordinate our risk management efforts across the agency. We have worked to promote a culture that emphasizes the importance of data security throughout our divisions and offices. The staff has also been engaging with outside experts to assess and improve our security controls. We recognize, however, that no system can be entirely safe from a cyber intrusion, and that there is a lot of work that remains to be done.

From an enforcement perspective, our Cyber Unit is dedicated to targeting cyber-related misconduct in our markets. Among other things—in addition to looking at potential violations in some of the areas I have just described—the Cyber Unit has focused on alleged misconduct involving intrusions into retail brokerage accounts, the submission of false regulatory filings and hacking to obtain material non-public information.

And finally, from an investor education perspective, our Office of Investor Education and Advocacy has worked hard to inform investors about cybersecurity hygiene and red flags of cyber fraud, in order to prevent investors from becoming victims in the first place. Those are just some of the areas we are looking at, and I look forward to discussing them further with today’s distinguished panel members.

Conclusion

I am very pleased with our accomplishments in 2018, but much remains to be done and we are facing new challenges—some known and some that we will come to know. That is why the agenda for 2019 is ambitious. Yet it is pragmatic in the number of items, only a handful of which I was able to cover today.

Thank you for the invitation to speak to you.

Appendix A

FY 2018 One-Year Agenda (Published in the Fall of 2017) [40]
(Strikeouts Reflect Completion of Indicated Stage of Rulemaking)

Agency Agenda Stage of Rulemaking Title RIN
SEC Proposed Rule Stage Amendments to Financial Disclosures About Acquired Businesses [41] 3235-AL77
SEC Proposed Rule Stage Guide 3 Bank Holding Company Disclosure [42] 3235-AL79
SEC Proposed Rule Stage Amendments to Implement FAST Act Report 3235-AM00
SEC Proposed Rule Stage Disclosure of Payments by Resource Extraction Issuers [43] 3235-AM06
SEC Proposed Rule Stage Amendments to the Financial Disclosures for Registered Debt Security Offerings 3235-AM12
SEC Proposed Rule Stage Exchange-Traded Funds 3235-AJ60
SEC Proposed Rule Stage Enhanced Disclosure for Separate Accounts Registered as Unit Investment Trusts and Offering Variable Annuities 3235-AK60
SEC Proposed Rule Stage Personalized Investment Advice Standard of Conduct 3235-AL27
SEC Proposed Rule Stage Amendments to Securities Act Rules Under the Fair Access to Investment Research Act of 2017 3235-AM24
SEC Proposed Rule Stage Transaction Fee Pilot 3235-AM04
SEC Proposed Rule Stage Prohibitions and Restrictions on Proprietary Trading and Certain Relationships With Hedge Funds and Private Equity Funds 3235-AM10
SEC Proposed Rule Stage Harmonization of Certain Title VII Rules[44] 3235-AM13
SEC Proposed Rule Stage Auditor Independence With Respect to Loans or Debtor-Creditor Relationships 3235-AM01
SEC Proposed Rule Stage Proposed Amendment to Rule for Nationally Recognized Statistical Rating Organizations 3235-AM05
SEC Proposed Rule Stage Amendments to the Commission’s Whistleblower Program Rules 3235-AM11
SEC Final Rule Stage Treatment of Certain Communications Involving Security-Based Swaps That May be Purchased Only by Eligible Contract Participants 3235-AL41
SEC Final Rule Stage Amendments to Interactive Data (XBRL) Program 3235-AL59
SEC Final Rule Stage Modernization of Property Disclosures for Mining Registrants 3235-AL81
SEC Final Rule Stage Disclosure Update and Simplification 3235-AL82
SEC Final Rule Stage Amendments to Smaller Reporting Company Definition 3235-AL90
SEC Final Rule Stage Investment Company Reporting Modernization; Option for Website Transmission of Shareholder Reports 3235-AL42
SEC Final Rule Stage Amendments to Investment Advisers Act Rules to Conform to the FAST Act 3235-AM02
SEC Final Rule Stage Regulation of NMS Stock Alternative Trading Systems 3235-AL66
SEC Final Rule Stage Disclosure of Order Handling Information 3235-AL67
SEC Final Rule Stage Covered Securities Pursuant to Section 18 of the Securities Act of 1933 3235-AM07
SEC Final Rule Stage Amendments to Municipal Securities Rules 3235-

Appendix B

FY 2019 One-Year Agenda (Published in the Spring and Fall of 2018) [45]
(Strikeouts Reflect Completion of Indicated Stage of Rulemaking)

Agency Agenda Stage of Rulemaking Title RIN
SEC Prerule Stage Fund Retail Investor Experience and Disclosure Request for Comment 3235-AM28
SEC Prerule Stage Harmonization of Exempt Offerings 3235-AM27
SEC Prerule Stage Earnings Releases/Quarterly Reports 3235-AM40
SEC Proposed Rule Stage Modernization of Investment Company Disclosure 3235-AM28
SEC Proposed Rule Stage Amendments to Financial Disclosures About Acquired Businesses 3235-AL77
SEC Proposed Rule Stage Business, Financial and Management Disclosure Required By Regulation S-K 3235-AL78
SEC Proposed Rule Stage Guide 3 Bank Holding Company Disclosure 3235-AL79
SEC Proposed Rule Stage Filing Fee Processing 3235-AL96
SEC Proposed Rule Stage Disclosure of Payments by Resource Extraction Issuers 3235-AM06
SEC Proposed Rule Stage Extending the Testing the Waters Provision to Non-Emerging Growth Companies 3235-AM23
SEC Proposed Rule Stage Accelerated Filer Definition 3235-AM41
SEC Proposed Rule Stage Regulation A 3235-AM42
SEC Proposed Rule Stage Exchange-Traded Funds 3235-AJ60
SEC Proposed Rule Stage Enhanced Disclosure for Separate Accounts Registered as Unit Investment Trusts and Offering Variable Insurance Products 3235-AK60
SEC Proposed Rule Stage Use of Derivatives by Registered Investment Companies and Business Development Companies 3235-AL60
SEC Proposed Rule Stage Amendments to the Marketing Rules Under the Advisers Act 3235-AM08
SEC Proposed Rule Stage Fund of Funds Arrangements 3235-AM29
SEC Proposed Rule Stage Offering Reform for Business Development Companies under the Small Business Credit Availability Act and Closed-end Funds under the Economic Growth, Regulatory Relief, and Consumer Protection Act 3235-AM31
SEC Proposed Rule Stage Transfer Agents 3235-AL55
SEC Proposed Rule Stage Harmonization of Certain Title VII Rules 3235-AM13
SEC Proposed Rule Stage Volcker Rule Community Bank Relief and Removing Naming Restrictions 3235-AM43
SEC Proposed Rule Stage Investment Company Liquidity Disclosure 3235-AM30
SEC Final Rule Stage Disclosure of Hedging by Employees, Officers and Directors 3235-AL49
SEC Final Rule Stage Modernization of Property Disclosures for Mining Registrants 3235-AL81
SEC Final Rule Stage Disclosure Update and Simplification 3235-AL82
SEC Final Rule Stage Amendments to Implement FAST Act Report 3235-AM00
SEC Final Rule Stage Amendments to the Commission’s Freedom of Information Act Regulations 3235-AM25
SEC Final Rule Stage Form CRS Relationship Summary; Amendments to Form ADV; Required Disclosures to Retail Communications and Restrictions on the use of Certain Names or Titles 3235-AL27
SEC Final Rule Stage Amendments to Securities Act Rules Under the Fair Access to Investment Research Act of 2017 3235-AM24
SEC Final Rule Stage Commission Interpretation Regarding Standard of Conduct for Investment Advisers; Request for Comment on Enhancing Investment Adviser Regulation 3235-AM36
SEC Final Rule Stage Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Capital Requirements for Broker-Dealers 3235-AL12
SEC Final Rule Stage Reporting and Recordkeeping Requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants 3235-AL45
SEC Final Rule Stage Definition of “Covered Clearing Agency” 3235-AL48
SEC Final Rule Stage Disclosure of Order Handling Information 3235-AL67
SEC Final Rule Stage Applications by Security-Based Swap Dealers or Major Security-Based Swap Participants for Statutorily Disqualified Associated Persons to Effect or Be Involved in Effecting Security-Based Swaps 3235-AL76
SEC Final Rule Stage Transaction Fee Pilot 3235-AM04
SEC Final Rule Stage Prohibitions and Restrictions on Proprietary Trading and Certain Relationships With Hedge Funds and Private Equity Funds 3235-AM10
SEC Final Rule Stage Regulation Best Interest 3235-AM35
SEC Final Rule Stage Amendments to Municipal Securities Disclosure 3235-AL97
SEC Final Rule Stage Auditor Independence With Respect to Loans or Debtor-Creditor Relationships 3235-AM01
SEC Final Rule Stage Amendments to the Commission’s Whistleblower Program Rules 3235-AM11

Endnotes

1My words are my own and do not necessarily reflect the views of my fellow Commissioners or the SEC staff.(go back)

2U.S. Securities and Exchange Commission, Strategic Plan Fiscal Years 2018-2022 (Oct. 11, 2018), available at https://www.sec.gov/files/SEC_Strategic_Plan_FY18-FY22_FINAL_0.pdf. U.S. Securities and Exchange Commission, Agency Financial Report Fiscal Year 2018 (Nov. 15, 2018), available at https://www.sec.gov/files/sec-2018-agency-financial-report.pdf.(go back)

3The 2018 annual reports are forthcoming. Financial Stability Board, 4th Annual Report (Dec. 27, 2017), available at http://www.fsb.org/wp-content/uploads/P160118.pdf. Financial Stability Oversight Council, 2017 Annual Report (Dec. 14, 2017), available athttps://www.treasury.gov/initiatives/fsoc/studies-reports/Documents/FSOC_2017_Annual_Report.pdf.(go back)

4U.S. Securities and Exchange Commission, Annual Report Division of Enforcement 2018 (Nov. 2, 2018), available at https://www.sec.gov/files/enforcement-annual-report-2018.pdf. U.S. Securities and Exchange Commission, 2018 National Exam Program Examination Priorities (Feb. 7, 2018), available at https://www.sec.gov/about/offices/ocie/national-examination-program-priorities-2018.pdf.(go back)

5Regulatory Flexibility Act of 1980, Pub. L. No. 96-354. Pursuant to this statute, federal agencies are required to publish an agenda of rules that they are developing that are likely to have a significant economic impact on a substantial number of small entities.(go back)

6Chairman Jay Clayton, Governance and Transparency at the Commission and in Our Markets, Remarks at the PLI 49th Annual Institute on Securities Regulation (Nov. 8, 2017), available athttps://www.sec.gov/news/speech/speech-clayton-2017-11-08.(go back)

7The Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub.L. 111–203, 124 Stat. 1376.(go back)

8Some of those rulemakings remain and three of them, including hedging disclosure and several of the TitleVII rules, are on our near-term agenda.(go back)

9The Reg Flex agenda for 2018 rulemaking was published in the Federal Register on October 6, 2017, available at https://www.reginfo.gov/public/do/eAgendaMain?operation=OPERATION_GET_AGENCY_RULE_LIST&currentPubId=201710&showStage=active&agencyCd=3235&Image58.x=26&Image58.y=16.(go back)

10See Appendix A. Over the past 10 years, the Commission completed, on average, approximately one-third of the rules listed on the near-term agenda.(go back)

11Commission Statement and Guidance on Public Company Cybersecurity Disclosures, 83 Fed. Reg. 8,166 (Feb. 26, 2018).(go back)

12Rule 701—Exempt Offerings Pursuant to Compensatory Arrangements, 83 Fed. Reg. 34,940 (July 24, 2018). See also Concept Release on Compensatory Securities Offerings and Sales, 83 Fed. Reg. 34,958 (July 24, 2018).(go back)

13Press Release 2018-202, SEC Provides Regulatory Relief and Assistance for Hurricane Victims (Sept. 19, 2018), available at https://www.sec.gov/news/press-release/2018-202.(go back)

14Regulation Best Interest, 83 Fed. Reg. 21,574 (May 9, 2018); Proposed Commission Interpretation Regarding Standard of Conduct for Investment Advisers; Request for Comment on Enhancing Investment Adviser Regulation, 83 Fed. Reg. 21,203 (May 9, 2018); Form CRS Relationship Summary; Amendments to Form ADV; Required Disclosures in Retail Communications and Restrictions on the use of Certain Names or Titles, 83 Fed. Reg. 21,416 (May 9, 2018).(go back)

15Amendments to Smaller Reporting Company Definition, 83 Fed. Reg. 31,992 (July 10, 2018).(go back)

16See, e.g., Remarks at the Third Annual Conference on the Evolving Structure of the U.S. Treasury Market, SEC Chairman Jay Clayton (Nov. 28, 2017),available athttps://www.sec.gov/news/speech/clayton-2017-11-28.(go back)

17See Press Release 2017-209, SEC Announces the Formation and First Members of Fixed Income Market Structure Advisory Committee (Nov. 9, 2017), available athttps://www.sec.gov/news/press-release/2017-209.(go back)

18See Fixed Income Market Structure Advisory Committee, available athttps://www.sec.gov/spotlight/fixed-income-advisory-committee.(go back)

19Regulation of NMS Stock Alternative Trading Systems, 83 Fed. Reg. 38,768 (Aug. 7, 2018).(go back)

20Additionally, last month, the Commission adopted amendments to Regulation NMS to provide investors with greater transparency concerning how brokers handle and execute their orders. Disclosure of Order Handling Information, 83 Fed. Reg. 58,338 (Nov. 19, 2018).(go back)

21Chairman Jay Clayton, Remarks at the Economic Club of New York (July 12, 2017), available at https://www.sec.gov/news/speech/remarks-economic-club-new-york.(go back)

22The Reg Flex agenda for 2019 rulemaking was published in the Federal Register on August 7, 2018, available at https://www.reginfo.gov/public/do/eAgendaMain?operation=OPERATION_GET_AGENCY_RULE_LIST&currentPub=true&agencyCode=&showStage=active&agencyCd=3235.(go back)

23See Appendix B.(go back)

24The SEC held roundtables in Houston, Atlanta, Miami, Washington, D.C., Philadelphia, Denver, and Baltimore. See https://www.sec.gov/investor-roundtables.(go back)

25See Tell us About Your Experience, available at www.sec.gov/tell-us.(go back)

26Investor Testing of Form CRS Relationship Summary (Nov. 2018), available at https://www.sec.gov/about/offices/investorad/investor-testing-form-crs-relationship-summary.pdf.(go back)

27See Comments on Proposed Rule: Regulation Best Interest, available at https://www.sec.gov/comments/s7-07-18/s70718.htm. Of the more than 6,000 comment letters, approximately 3,000 were unique letters.(go back)

28See November 15, 2018: Roundtable on the Proxy Process, available athttps://www.sec.gov/proxy-roundtable-2018.(go back)

29Investor Alert: Self-Directed IRAs and the Risk of Fraud (Aug. 8, 2018), available athttps://www.sec.gov/investor/alerts/sdira.html.(go back)

30Are Today’s Young Workers Better Able to Save for Retirement?, The Pew Charitable Trusts (May 2, 2018), available at https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2018/05/are-todays-young-workers-better-able-to-save-for-retirement.(go back)

31JOBS and Investor Confidence Act of 2018, S. 488, 115th Cong. (2018).(go back)

32See Statement on Digital Asset Securities Issuance and Trading, Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets (Nov. 16, 2018), available at https://www.sec.gov/news/public-statement/digital-asset-securites-issuuance-and-trading.(go back)

33See FinHub—Strategic Hub for Innovation and Financial Technology, available athttps://www.sec.gov/finhub. FinHub is a resource and a forum for engaging with SEC staff on matters dealing with distributed ledger technology, automated investment advice, digital marketplace financing, and artificial intelligence/machine learning.(go back)

34Chris Giles and Sylvia Pfeifer, BoE Sounds Alarm over No-Deal Brexit Planning, Fin. Times, Nov. 29, 2018 (noting that the Bank of England’s Governor Mark Carney says that less than half of the businesses in the U.K. are not prepared for the risk of a no-deal Brexit).(go back)

35European Commission Communication, Preparing for the withdrawal of the United Kingdom from the European Union on 30 March 2019: a Contingency Action Plan (Nov. 13, 2018), available at https://ec.europa.eu/info/publications/communication-preparing-withdrawal-united-kingdom-european-union-30-march-2019-contingency-action-plan-13-11-2018_en.(go back)

36These estimates are as of the end of 2016. Of the $200 trillion in notional exposure, approximately 95% relates to derivatives products. Over $8 trillion of exposure relates to business loans, consumer loans, floating/variable rate notes, and securitizations. See Second Report of the Alternative Reference Rates Committee (March 2018), available athttps://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2018/ARRC-Second-report.com.(go back)

37Relying on daily compounding over a three-month period, for example, may result in issuers not having certainty about the size of their interest payment until the end of the period. Also, SOFR does not correspond one-to-one with LIBOR; LIBOR incorporates a credit risk premium whereas SOFR is a secured rate. In a transition, a methodology needs to be developed to determine fair spreads between the two rates.(go back)

38For example, trading in SOFR futures in the U.S. commenced in May. See CME Group Announces First Trades of New SOFR Futures (May 8, 2018), available athttps://www.cmegroup.com/media-room/press-releases/2018/5/08/cme_group_announcesfirsttradesofnewsofrfutures.html. The market’s first-ever SOFR-linked debt securities were issued in July, and since then additional issuances have occurred. See Fannie Mae Pioneers Market’s First-Ever Secured Overnight Financing Rate (SOFR) Securities (July 26, 2018), available at http://www.fanniemae.com/portal/media/financial-news/2018/fannie-mae-pioneers-sofr-securities-6736.html. In addition, central counterparties have commenced clearing of SOFR swaps. See LCH Clears First SOFR Swaps (July 18, 2018), available at https://www.lch.com/resources/news/lch-clears-first-sofr-swaps. See also CME Group Announces First OTC SOFR Swaps Cleared (Oct. 9, 2018), available athttps://www.cmegroup.com/media-room/press-releases/2018/10/09/cme_group_announcesfirstotcsofrswapscleared.html.(go back)

39Commission Statement and Guidance on Public Company Cybersecurity Disclosures, 83 Fed. Reg. 8,166 (Feb.26, 2018).(go back)

40The list in Appendix A reflects the near-term initiatives identified in the fall of 2017 for completion by the fall of 2018.(go back)

41I estimate completion of this initiative by April 30, 2019.(go back)

42I estimate completion of this initiative by April 30, 2019.(go back)

43I estimate completion of this initiative by September 30, 2019.(go back)

44In October 2018, the Commission issued a statement on certain provisions of business conduct standards for security-based swap dealers and major security-based swap participants, which was the culmination of outreach by Commission staff and their counterparts at the U.S. Commodity Futures Trading Commission, consistent with the agencies’ shared commitment to achieving greater harmonization of the Title VII rules. Other harmonization initiatives are ongoing.(go back)

45The list in Appendix B reflects a combination of the near-term initiatives identified in the spring of 2018 and the fall of 2018 for completion by April and October 2019, respectively.(go back)

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