In his remarks at the PLI 49th Annual Institute on Securities Regulation, SEC Chairman Jay Clayton focused on two themes: governance and transparency. In particular, Chairman Clayton discussed the SEC's new strategic plan, which is scheduled for release in 2018 and will outline the SEC's vision for the next four years. With respect to governance, he expects the new strategic plan to reflect "(1) the key challenges and trends facing our markets and regulatory programs, (2) the agency's most important strategic priorities, and (3) the initiatives we are pursuing to attain those goals."1
In that regard, Chairman Clayton highlighted three longer-term priorities: (i) shareholder engagement and the proxy process, (ii) retail shareholder participation, and (iii) shareholder proposals. In terms of the proxy process, he suggested soliciting updated feedback from market participants about the proxy system. In his view, further focus on retail investors would also help address their high rate of nonparticipation in the proxy process. Finally, Chairman Clayton cited diverse views on the shareholder proposal process and questioned whether current rules are adequately serving long-term retail investors.
As for transparency, Chairman Clayton asserted that "where opacity exists, bad behavior follows,"2 and identified five areas in which transparency can help deter, mitigate, or eliminate misconduct: (1) fee disclosure, (2) penny stocks, (3) transaction processing, (4) initial coin offerings, and (5) investor education. In addition to its ongoing enforcement efforts, the SEC is "exploring whether more can be done to clarify fee disclosures made to retail investors"3 to combat hidden or inappropriate fees that harm investors. As for penny stocks, Chairman Clayton cited a lack of current, reliable information about penny stock issuers, making it more difficult for retail investors to evaluate potential risks and rewards of such investments. In terms of transaction processing, Chairman Clayton identified issues with the purchase of "restricted securities" by retail investors and specifically asserted that some transfer agents repeatedly disregard "red flags" in connection with the removal of legends on restricted shares.
More recently, the SEC has focused on initial coin offerings (ICOs), which can be "susceptible to price manipulation and other fraudulent trading practices."4 Moreover, the SEC has warned that the tokens sold in ICOs may be securities, the offer and sale of which must comply with the federal securities laws. In addition, Chairman Clayton highlighted that the SEC "will continue to seek clarity for investors on how tokens are listed on [national securities] exchanges and the standards for listing; how tokens are valued; and what protections are in place for market integrity and investor protection."5 Finally, Chairman Clayton stated that the SEC should arm investors with information, thereby making it more difficult to defraud them. In this regard, he points to the SEC's new website, which contains a searchable database of debarred or suspended individuals.
Chairman Clayton's remarks present an opportunity for market participants to assess the themes, initiatives, and priorities being considered by the SEC. Click here for more on Chairman Clayton's remarks with respect to governance and transparency.