On September 26, Securities and Exchange Commission (SEC) Chairman Jay Clayton testified before the Senate Banking, Housing, and Urban Affairs Committee on the “Oversight of the US Securities and Exchange Commission.” Highlights of his testimony included the following:
- Chairman Clayton has asked the SEC staff to prepare final rulemaking recommendations with respect to amendments to: (1) Rule 606 of Regulation NMS (proposed in July 2016), which would, among other things, require broker-dealers to disclose standardized information on their handling of large orders on a quarterly basis and in response to customer requests; and (2) Regulation ATS (proposed in November 2015) to establish new transparency requirements on alternative trading systems that facilitate transactions in NMS stocks.
- With respect to the Consolidated Audit Trail (CAT), which will provide regulators with consolidated cross-market data and is currently under development, Chairman Clayton indicated that he is focused on the issue of data security, which he has stressed to the CAT plan processor and the self-regulatory organizations that will report data into the CAT. The first phase of CAT data reporting takes effect on November 15.
- Preliminary analyses of the Tick Size Pilot (which began in October 2016 to test the impact of wider tick sizes on trading in stocks of smaller companies) suggests that for many covered securities, quoted spreads and depth of book have increased and volatility has decreased, although results have been mixed.
- At Chairman Clayton’s request, the SEC staff is developing a pilot program to test the impact on equities trading of adjustments to the access fee cap under Rule 610 of Regulation NMS (which limits the fees that can be charged for access to protected quotations and manual quotations at the best bid and offer).
- To broaden the SEC’s review of market structure to include fixed income markets, the SEC is establishing a Fixed Income Market Structure Advisory Committee (FIMSAC) with hopes that it will begin meeting as early as December of this year.
- The SEC has been focused on both determining the scope of the 2016 intrusion into its EDGAR system, which provided access to nonpublic filing information, and investigating trading related to the intrusion. The investigation related to the 2016 intrusion is part of an ongoing initiative to assess the SEC’s cybersecurity risk profile and preparedness.
- On June 1, the SEC solicited input regarding standards of conduct for investment advisers and broker-dealers from interested parties and currently is reviewing this information as it evaluates its next steps in this area.
- With respect to enforcement, the SEC will focus its resources on retail investor fraud, investment professional misconduct, insider trading, market manipulation, accounting fraud and cyber matters.
- The SEC’s Office of Compliance Inspections and Examinations plans to increase investment advisor examination coverage levels, as well as to increase the number of inspections to evaluate compliance with SEC rules (such as Regulation SCI) to ensure that the cybersecurity infrastructure of our markets is effective.