Yesterday, in a speech before the Council of Institutional Investors, SEC Chairman Mary Schapiro provided a timeline for proposed actions by the SEC. As previously announced, first on the agenda is tomorrow’s open meeting to consider proposing new rules limiting short sales.
Next month, the SEC will consider a proposal relating to proxy access. Chairman Schapiro noted that the SEC will review the proposals considered in 2003 and 2007, and the impact such changes would have on Delaware’s corporate law. “Proxy access,” said Chairman Schapiro “is about making boards more accountable for the risks undertaken by the companies they manage.”
In June, the SEC will consider whether to enhance disclosure relating to director nominee experience, qualifications and skills. While the current rules require a brief description of a candidate’s business experience over the past five years, Chairman Schapiro suggested that shareholders may require more information in today’s complex business environment. At some point, Chairman Schapiro said, the SEC will be considering whether boards should disclose to shareholders their rationale for choosing a particular leadership structure.
Soon, the SEC will consider whether to require greater disclosure about how a company manages risk. Specifically, the Commission will be considering whether greater disclosure is needed about how a company’s board manages risk generally (beyond the market risk disclosures required by Item 306 of Regulation S-X), and how the board manages risk in the context of setting compensation. Chairman Schapiro cited the recent report by the Financial Stability Forum on compensation practices, which suggested three principles for “sound compensation practices.” Of these principles, two relate to shareholder information, and Chairman Schapiro reiterated her desire to ensure that shareholders fully understand how compensation structures and practices drive an executive’s risk-taking.
Chairman Schapiro also highlighted the SEC’s early thoughts for greater regulation of market professionals and intermediaries (certain of which would require enabling legislation), including:
- Requiring annual unannounced third-party audits of those with custody of client assets.
- Harmonizing responsibilities to provide uniform levels of professionalism and accountability between investment advisers and broker-dealers.
- Registering hedge fund advisers, and potentially hedge funds themselves.
- Requiring greater disclosure from credit rating agencies, possibly including the assumptions underlying their methodologies, fees received from issuers, and factors that could change ratings.
- Greater oversight of the credit default swap market, including possible reporting and recordkeeping rules that currently do not exist.
- Enhancing standards for money market funds.
- Requiring disclosure and investor protections for municipal securities akin to other securities.
- Enhancing disclosure regarding asset-backed securities.
Finally, Chairman Schapiro reiterated the SEC’s increased focus on enforcement, and her commitment to “put more boots on the ground,” as well as to provide the technological tools necessary to prosecute enforcement cases.