On December 11, 2014, SEC Chair Mary Jo White spoke at the New York Times DealBook Opportunities for Tomorrow Conference. In her remarks, Chair White focused on three core initiatives – data reporting, enhanced fund controls and transition planning – intended to help ensure that the SEC’s regulatory program is addressing fully the increasingly complex portfolio composition and operations of today’s asset management industry.
Chair White identified potential areas of improvement within each of these initiatives. Specifically, she stated that the reporting and disclosure of fund investments in derivatives, the liquidity and valuation of fund holdings, and funds’ securities lending practices should all be significantly enhanced. She also identified liquidity and use of derivatives as two key areas of focus within funds’ control environments. Chair White reported that the staff of the SEC is considering whether to implement specific requirements applicable to funds (e.g., updated liquidity standards) and whether broader risk management programs should be required for mutual funds and ETFs to address risks related to their liquidity and derivatives use. With respect to transition planning, Chair White noted that the staff is developing a proposal to require investment advisers to create transition plans to prepare for major disruptions in their business, and that the staff is considering new rules for stress testing by large investment advisers and large funds, as required by Dodd-Frank. She noted that the market perspective that the SEC brings to analyzing systemic risk issues complements the Financial Stability Oversight Council’s work.
Chair White concluded her speech by affirming the SEC’s continued focus on assessing the activities of the asset management industry as it evolves, ensuring that the SEC is addressing the risks of modern portfolio composition and operations, and anticipating and planning for the worst. She stated that the SEC’s objective is not to eliminate all risk. “Far from it. Investment risk is inherent in our capital markets – it is the engine that gives life to new companies and provides opportunities for investors.” Instead, she stated, that as our regulatory program evolves, “so too must our understanding of the balance that program strikes between reducing undue risks and preserving the principle of ‘reward for risk’ that is at the center of our capital markets.”