On July 12, in his first major address since becoming Chairman of the Securities and Exchange Commission earlier this year, Jay Clayton outlined his vision for the SEC under his Chairmanship based upon eight guiding “principles” and his approach for implementing those principles into practice.
In the speech, delivered at the Economic Club of New York, Chairman Clayton stressed that protection of investors—particularly retail investors (or as Chairman Clayton referred to them, the “Main Street Investor”)—will be a fundamental principle underlying the policies and actions of the SEC under his leadership. To that end, Clayton noted his intention to continue the SEC’s emphasis on its enforcement and examination programs in support of both vulnerable investors as well as sophisticated market participants. Clayton expressed support for the SEC’s long-standing disclosure-centric regulatory approach as the cornerstone of effective investor protection. Although Clayton advised against wholesale changes to the SEC’s regulatory framework, he noted his intention to focus on improving disclosure available to investors and encouraging various methods to educate investors. Clayton stressed that information about potential investments must be “easily accessible and meaningful” so that investors “can evaluate and make investment decisions that support more accurate valuations of securities and a more efficient allocation of capital.” He noted that the SEC has several initiatives underway in this regard, such as the modernization and simplification of the Regulation S-K disclosure rules and enhancing resources to educate investors on how to conduct online background searches on investment professionals.
Clayton also emphasized the importance of supporting capital formation and his desire to increase the attractiveness of the US public capital markets. Clayton noted that the gradual expansion of the scope of required disclosures—by the SEC, lawmakers and other regulators—has contributed to the approximately 50% decline in the total number of US listed public companies over the last two decades. He stated that an increasing number of companies seeking to raise capital have eschewed the public markets in favor of private markets, thereby largely preventing the Main Street Investor from participating in the growth of these companies. Clayton outlined some of the steps being taken by the SEC to enhance the ability of such investors to participate in investment opportunities while supporting the needs of companies to raise capital for growth in an efficient and cost-effective manner. He specifically cited the recent action taken by the SEC to broaden the application of JOBS Act provisions relating to confidential submissions of registration statements to companies that do not qualify as emerging growth companies (as discussed in the July 7 edition of the Corporate & Financial Weekly Digest). He also encouraged public companies, in connection with their capital raising activities, to consider requesting modifications to their financial reporting requirements where they believe those requirements impose burdensome disclosure obligations that would not provide information that is material to the total mix of information available to investors (pursuant to Rule 3-13 of Regulation S-X), indicating that the SEC staff is placing a high priority on responding timely to those requests.
Clayton also stressed the importance of coordination between and among regulatory agencies to the effective functioning of the markets and the reduction of unnecessary costs to market participants. One area of particular importance noted by Clayton was over-the-counter (OTC) derivatives. Clayton expressed his commitment to working closely with the Commodity Futures Trading Commission on issues relating to OTC derivatives—where a dual regulatory scheme exists—to avoid redundancy and undue complexity.
The complete text of Chairman Clayton’s speech is available here.