Great progress, but more work to do
Read the full report here.
The SEC’s Mission and Its Importance
The SEC is critical to maintaining the integrity, stability, and vitality of the securities markets, and these markets are vital to economic prosperity. They can finance and expand businesses of all types and sizes, produce goods and services, and fuel the real economy.
The SEC’s responsibility is to create and enforce strong rules to ensure that the securities markets are fair, transparent, and stable. If the SEC fails, investors will be subject to fraud and abuse and the market will become more vulnerable to dangerous instability. And when investors lose confidence in the integrity and stability of the securities market, they retreat, ultimately threatening the vitality of capital formation and the prosperity of all Americans.
As such, the SEC makes investor protection a priority, requiring companies to disclose complete and accurate information about investment opportunities, for example. That’s also why the SEC plays the role of the federal police in the securities industry. This is the primary line of defense against financial institutions and individuals who engage in fraud or other forms of abuse at the expense of investors.
Given the SEC’s important role, we looked back at the SEC’s efforts over the past year on two fronts. regulation When executionOur report shows that the SEC deserves recognition for many of its priorities and accomplishments, but it also highlights areas where the SEC needs to do more to meet its statutory obligations and serve the American people. to
The SEC uses its existing powers under securities law to combat unregistered fraud. Crypto offer which has grown exponentially in the last few years.On the other hand, some companies use new Practicing Digital Engagement (DEP) and gamification techniques are meant to induce trading habits that are not in the best interest of investors, and the SEC is planning new rules to target these abuses. The SEC recently withdrew rule provisions adopted under the previous administration, Proxy voting advisory firm To provide timely and independent advice to clients on corporate governance matters requiring informed shareholder votes. mandatory arbitration It has plagued investors for years, relegating investors to secretive, unfair, and often expensive forums when they fall victim to companies. To prohibit or restrict, you must exercise your express authority under the Dodd-Frank Act. Advisors continue to provide conflicting advice to their clients to generate fees and commissions, although the SEC has issued helpful guidance and started enforcing it. Regulation “Best Interest” The rules themselves need to be strengthened.
how to order Securities transactions are processed and routed Making a big difference for investors, the SEC has proposed an ambitious set of rules to make the process fairer and more transparent. This includes new best execution standards, order competition requirements, smaller trading units, and enhanced disclosures about how well orders have been executed. Additionally, to mitigate risk, the SEC is proposing: Shorten the “payment cycle” The period between a trade and the settlement of that trade by an exchange of real money and securities.
Executive compensation practices that encourage risky financial activities helped set the stage for the 2008 financial crisis. The SEC recently finalized two important rules. Executive Compensation and Performance And those that require companies to recover or recover Take back incentive-based rewards It was incorrectly awarded, as indicated by the recalculated accounts.big market in america government bonds SEC tightens oversight of trading platforms specializing in government securities, requires high-frequency trading firms that trade broadly in government securities to register as dealers, and pursues new rules to demand more trading doing. The U.S. Treasury Department operates through a central clearinghouse. The SEC has proposed new liquidity requirements. money market fund Although more resilient in times of market stress, the necessary measures to strengthen these bank-like products, such as capital buffers and pricing of all MMFs that accurately reflect changes in equity values (floating NAV) No. Finally, the SEC needs to do more to address the conflicts of interest that govern major transactions. credit rating agency, has a history of inflating ratings to attract and retain lucrative rating business from companies seeking to raise capital. The SEC should establish an independent allocation system for structured products as required under the Dodd-Frank Act. Clarify that rating agencies are responsible for misleading ratings. Reveals the names of companies shown to have violated the law in annual investigative reports compiled by the SEC.
of Private placement market It replaced a more transparent “initial public offering” funding process. The SEC has increased the transparency of the required filings (Form D) related to private offerings and updated the definition of accredited investors to ensure that only wealthier investors bear increased risk in private offerings. , plans to help restore balance by expanding the range of companies in need. File periodic reports with the SEC (due to changes in the definition of a “record” shareholder). The SEC is actively working to combat abuse of its offerings. Special Purpose Acquisition Company (SPAC) Through the proposal and targeted enforcement of regulations.
Environmental, Social, and Governance (ESG) factors are becoming more and more of a concern when investors decide where to put their money at risk. The SEC responds with two rules aimed at ensuring that investment fund strategies are aligned fund name and strengthen Disclosure Concerning ESG funds. The SEC has also proposed extensive rules requiring enhanced and standardized corporate information. Climate Change Disclosure risk. To address racial economic inequality, the SEC has issued an FAQ to promote diversity in the wealth management field. Board diversityTo reduce risk, promote fairness, and increase corporate transparency, the SEC is proposing rules to strengthen reporting requirements when: 5% ownership threshold To reach out at the company and reveal more information about share buybackoften used to increase executive compensation rather than benefit the company or its employees.
Private investment funds pose stability risks and investor protection concerns. The SEC is well on its way to proposing rules to improve the quantity, quality, and timeliness of private fund reporting. Form PFproposed a rule requesting a more comprehensive rule Disclosure to investorsaudits, impartial opinions on certain transactions, and prohibition of investor favors.
The SEC has amassed an impressive enforcement record with an increasing number of cases and monetary sanctions totaling $6.4 billion in fiscal 2022. But to stem the tide of securities violations, we must be more aggressive. SEC must hold regularly individual Not only their corporate bodies are accountable.impose fine large enough to effectively deter unlawful activity in relation to the defendant’s assets or net worth;more robust imposition non-financial sanctions Reform behavior and protect the public.
SEC continues to Whistleblowing program And to make it clear that we will only consider increasing the amount of the prize, not to reduce it, and furthermore, that we are prepared to pay the prize, even if we are able to do so, We wisely finalized two rules. Under another agency’s whistleblowing program.Finally, as noted above, the SEC will actively crypto offender Under securities law, a compilation of significant cases is provided in the appendix.
For more information, check out the full report here. Download the factsheet here.