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.
Posts Tagged ‘SEC’
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.
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.
Activist shareholder campaigns continue to grow in number and prominence. One of the largest private equity deals of 2014—the $8.7 billion buy-out of PetSmart Inc.—came about following comments by a significant shareholder. A merger of the two leading office superstores, Staples and Office Depot, and the breakup of DuPont Co., each are being promoted by activist investors. These are but three examples of recent activist campaigns; with close to $200 billion in available funds, others are sure to follow.  The continued rise of shareholder activism serves as a useful reminder that targets and investors should be mindful of the scope of the investment-only exemption under the Hart-Scott-Rodino Act. Whether and when particular conduct may disqualify a shareholder from the passive investment exemption is a highly fact-specific inquiry and has been the subject of several enforcement actions in recent years.
It is difficult to overstate the importance of the municipal securities market. There is perhaps no other market that so profoundly influences the quality of our daily lives. Municipal securities provide financing to build and maintain schools, hospitals, and utilities, as well as the roads and other basic infrastructure that enable our economy to flourish. Municipal bonds’ tax-free status also makes them an important investment vehicle for individual investors, particularly retirees. Ensuring the existence of a vibrant and efficient municipal bond market is essential, particularly at a time when state and local government budgets remain stretched.
Unfortunately, despite its size and importance, the municipal securities market has been subjected to a far lesser degree of regulation and transparency than other segments of the U.S. capital markets. In fact, investors in municipal securities are afforded “second-class treatment” under current law in many ways. This has allowed market participants to cling to outdated notions about how the municipal securities market should operate. The result is a market that, in the view of many, is excessively opaque, illiquid, and decentralized.
Today’s [February 19, 2015] Roundtable on Proxy Voting is certainly timely since over the course of the next several months, thousands of America’s public companies will hold annual shareholders meetings to elect directors and to vote on many important corporate governance issues. The start of the annual “proxy season” is an appropriate time to consider the annual process by which companies communicate with their shareholders and get their input on a variety of issues. Whether it’s voting on directors, executive compensation matters, or other significant matters, the annual meeting is the principal opportunity for shareholders—the true owners of public companies—to have their voices heard by the corporate managers of their investments. At these annual meetings, shareholders can express their support, or disappointment, with the direction of their companies through the exercise of their right to vote.
As calendar-year reporting companies close the books on fiscal 2014, begin to tackle their annual reports on Form 10-K and think ahead to reporting for the first quarter of 2015, a number of issues warrant particularly close board and management attention. In highlighting these key issues, we include guidance gleaned from the late Fall 2014 programs during which members of the staff of the Securities and Exchange Commission (SEC) and other regulators delivered important messages for companies and their outside auditors to consider. Throughout this post, we offer practical suggestions on “what to do now.”
While there are no major changes in the financial reporting and disclosure rules and standards applicable to the 2014 Form 10-K, companies can expect heightened scrutiny from regulators, and heightened professional skepticism from outside auditors, regarding compliance with existing rules and standards. Companies can also expect shareholders to have heightened expectations of transparency fostered by notable 2014 events such as major corporate cyber-attacks. Looking forward into 2015, companies will need to prepare for a number of significant changes, including a new auditing standard for related party transactions, a new revenue recognition standard and, for the many companies that have deferred its adoption, a new framework for evaluating internal control over financial reporting (ICFR). The role of the audit committee in helping the company meet these challenges is undiminished—and perhaps, in regulators’ eyes, more important than ever.
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.
Pursuant to Section 955 of the Dodd-Frank Act, the SEC on February 9, 2015 proposed hedging disclosure rules for public comment and review. These rules, if adopted, would require proxy statements involving the election of directors to disclose whether the company permits employees (including officers), members of the board of directors or their designees to engage in transactions to hedge or offset any decrease in the market value of equity securities that are granted to the employee or board member as compensation or otherwise held, directly or indirectly, by the employee or board member, regardless of source.
Understanding the mechanics of public dissemination of firm information has become especially critical in a world where trading advantages are now measured in fractions of a second. In our study, Run EDGAR Run: SEC Dissemination in a High-Frequency World, which was recently made publicly available on SSRN, we examine the SEC’s process for disseminating insider trading filings. We find that, in the majority of cases, filings are available to private paying subscribers of the SEC feeds before they are posted to the SEC website, with an average private advantage of 10.5 seconds.