On Tuesday, July 25, 2017, SEC Chairman Jay Clayton spoke at the U.S. Chamber of Commerce Center for Capital Markets Competitiveness (CCMC). During the panel, Chairman Clayton discussed the Commission’s priorities on a variety of issues.
Bad Actors/Retail Fraud. Chair Clayton noted the substantial costs of the effects of a bad actor and the costs of restoring faith in our capital markets. He also made it clear that there would be no tolerance for retail fraud under his tenure.
Enforcement. Chair Clayton noted that the Commission has increased the use of data to determine more effective ways to target exams, taking into consideration to whom to issue an exam, how to conduct the exam and whether the Commission is being effective in these examinations.
Proxy Reports/Disclosure Effectiveness. Chairman Clayton noted that adding disclosure does not signal better disclosure. The Chairman stressed that disclosure should be written to protect the investor rather than be written in case of a court appearance.
Reduction in Number of Public Companies. The Chairman stressed that the Commission would not do anything to inhibit private capital formation. He cited a recent meeting with a number of small- and mid-cap companies where they discussed the timing of their respective IPOs. Chairman Clayton noted that having both a healthy public capital market and a private equity market provides companies with financing options, facilitates capital formation and provides healthy and necessary market competition.
Lifecycle of a Company. Chairman Clayton referenced that, in the past, the general public used to be able to participate in the growth of a company, but in our current environment, Main Street has a limited ability to participate. He noted that it is difficult to offer private investment opportunities to individual investors in a cost effective way.
Effectiveness of the U.S. Capital Markets. The Chairman noted that the U.S. capital markets are efficient for large-cap companies, but Chairman Clayton noted that there is room for improvement for mid- and small-cap companies. The Chairman outlined a number of factors affecting the effectiveness of the U.S. capital markets for smaller companies, including liquidity in the secondary trading markets and the costs of being a public company.
Costs of Compliance. Chairman Clayton acknowledged the Commission’s need to keep in mind the costs of compliance when writing rules, given that compliance can be very costly depending on how the rule is written.
Pay Ratio Rule. The Chairman noted that the Commission will be reviewing the rule but recognizes that the compliance date is coming.
Best Interest Standard. The Chairman directly stated that he would be disappointed if there were any reductions in choices for the individual investor relating to the best interest standard. The Chairman noted that, with the DOL’s Fiduciary Rule on the books, having differing standards for individual investors would not make sense. He then noted that the market would benefit from greater clarity on this issue. Chairman Clayton stressed that the Commission wants the best for the main street investor and is hopeful that common ground exists between the DOL and the Commission’s mandates.
Coordination Among Domestic Regulators. Chairman Clayton acknowledged the cooperative nature between the Commission and other domestic regulators such as FSOC and the CFTC. The Chairman stressed, however, that there should be no gaps between the various regulatory rules, no duplication and that regulators should not be asking for the same information in different ways. He noted that his colleagues at the other regulators share this view. Specifically, the Chairman confirmed that the Commission is engaged with the CFTC on this issue, given that these two entities oversight sometimes overlaps.
Cyber Security. The Chairman stressed that coordination among regulators is very important when it comes to cyber security and that regulators should be developing standards in order to effectively respond to these incidents. He acknowledged that fellow regulators are very open to cooperation and indeed see the need for this cooperation. The Chairman also addressed the issue of punishing victims of a cyber attack. He noted that if a company was acting responsibly in terms of protections and disclosures, regulators should not be punishing them for being victims.
International Harmonization. Chairman Clayton noted that it is part of the Commission’s mission to handle international coordination of regulation as more U.S.-based companies become global companies and participants. The Chairman specifically acknowledged the Commission’s preparation for the implementation of MiFIID II and for any issues that might arise from the rule.
Materiality. Chairman Clayton also touched on the issue of materiality during the Q&A portion. The Chairman noted that having a flexible materiality standard is useful given that, when a court is determining materiality, the determination is reflective of the substantial difference between certain projects. In this instance, the Chairman was referencing the municipal bond space when discussing materiality.
In closing, the Chairman thanked former Chairman of the Commission Mary Joe White and Commissioner Michael Piwowar for their service.