Remarks of SEC representatives often provide valuable insight into areas of SEC focus and potential future rulemaking. At the SEC Speaks conference on Feb. 5, 2010, SEC Chairman Mary Schapiro discussed, among other items, the following:

  • SEC Internal Reforms
    • The SEC Enforcement Division was restructured last year and its procedures were streamlined. “No longer do attorneys need to get full Commission approval to initiate an investigation or enter into settlement talks with corporate defendants.”
    • In discussing the SEC’s Office of Compliance Inspections and Examinations (OCIE), Chairman Schapiro noted that improvements were being made to the inspections program, with greater reliance placed on risk assessment. For example, the SEC began requiring examiners to review firms more vigorously before sending examiners in order to use limited resources wisely and target those firms with the greatest risk.
    • Chairman Schapiro also noted that “[i]nside the SEC we have been spending a great deal of time promoting a culture of collaboration – stressing the importance of sharing information and sharing ideas.” She noted that several cross-functional teams were formed to focus on particular issues and that broker-dealer and investment adviser examinations were beginning to be integrated.
  • Rulemaking Agenda
    • Target Date Funds. Chairman Schapiro noted that target date fund names can confuse investors or lull them into a false sense of security. She stated that she has asked the SEC staff to prepare a rule proposal for target date funds to provide additional information to investors when a fund uses a date in its name.
    • Point of Sale. Chairman Schapiro also intends to focus on point of sale disclosure in order to get more helpful, relevant information to investors at the point of sale.
    • 12b-1 Fees. Chairman Schapiro has asked the staff for a recommendation on 12b-1 fees for SEC consideration in 2010.
    • Proxy Access. Chairman Schapiro hopes the SEC will adopt rules to facilitate the effective exercise of the rights of shareholders to nominate directors to the boards of the companies they own.
    • Money Market Funds. Money market fund reforms are not yet done. “Looking ahead, we will be considering yet more measures to address money market fund risk.”
  • Market Structure
    • Chairman Schapiro also expects that the SEC will be voting on:
    • Proposed rules concerning flash orders;
    • Proposed rules that would generally require an investor’s interest in a stock to be made public instead of to a select group operating in a dark pool; and
    • Proposed rules that would effectively prohibit broker-dealers from providing their customers with unfiltered access to exchanges or alternative trading systems.
  • Chairman Schapiro advised that a task force has been created to further develop proposals for an inter-market audit trail to improve market surveillance. “I anticipate this spring that the SEC will consider staff recommendations to have the [self-regulatory organizations] develop and implement a consolidated audit trail that captures customer and order event information across markets.”

Additionally, at the CCOutreach National Seminar held on Jan. 26, 2010, Chairman Schapiro highlighted the following items in her remarks:

  • The role of Chief Compliance Officers (CCOs) is critical to investors as the first line of defense against impropriety and reinforces the SEC’s regulatory role. CCOs will succeed only if, among other things, the CCOs understand the rules themselves. CCOs must understand their firms, clients and employees. The CCOs also need to understand the firm’s business partners and how they are selected, as well as the parties with whom the firm trades in order to understand counterparty risk.
  • The SEC is a relatively small agency, with fewer resources than five years ago. This is one of the reasons the SEC is seeking to leverage third parties to assist the SEC in its core mission to protect investors. An example is a new process established to encourage corporate insiders to cooperate with the SEC in its enforcement actions.
  • The conference, which was the first joint national compliance seminar for brokerdealers, investment advisers and investment companies, reflected the ongoing trend of regulating these entities in a similar manner. An increasing number of firms are either dually registered as broker-dealers and investment advisers or have affiliates that are broker-dealers or investment advisers. For this and other reasons, the SEC is seeking to further coordinate and harmonize how it conducts examinations of broker-dealers, investment advisers, and investment companies. Chairman Schapiro noted that there should be a common fiduciary standard for investment advisers and broker-dealers at least as strong as the fiduciary duty under the Investment Advisers Act of 1940. Generally, similar standards should be applied to similar services.
  • The SEC is conducting risk-generated examination sweeps that could uncover fraud. A recent example is an SEC target sweep of more than 50 registrants that manage collateralized debt obligations, hedge funds and other vehicles holding asset-backed securities and other structured products. This sweep focuses on how firms manage these assets under the ongoing stresses of the credit market.