In opening remarks at the Practising Law Institute’s annual SEC Speaks conference, Chairman Jay Clayton compared the SEC to other successful organizations which have strong foundations, ample goodwill, and what he called a differentiator or "special sauce." The SEC’s foundation is based on the bedrock principles of the Securities Act and the Exchange Act which have proved to be resilient. Its goodwill resides with its employees and its strong reputation for acting with integrity, expertise, and good judgment, he continued, while the "special sauce" is its ability to adapt to the ever changing markets.
Following his opening remarks, Clayton was questioned by former Chairman Harvey Pitt about surprises he has encountered since his arrival at the Commission and his top priorities. As for surprises, he said they include the difference between the ground the SEC covers and what some expect it to cover. They are not the same, he noted. The public expects the SEC to cover almost every transaction and every government issue, he explained.
The Commission now has a full complement of commissioners for the first time in over two years. Clayton said it is great to have the two newest commissioners on board. They bring different perspectives which is valuable, but there is also a cost, which is time. He explained that commissioners cannot sit around a table together to hash out solutions given the restrictions of the Sunshine Act.
Priorities. Clayton reviewed his priorities but also noted the importance of leaving time for unexpected developments. Among his priorities is to bring clarity and harmony to the regulation of investment advisers and broker-dealers, to address equity market structure issues, and to complete the remaining Dodd-Frank mandates. The SEC’s regulatory flexibility agenda reflects what the SEC believes it will be able to achieve, according to Clayton.
IPOs. Pitt asked Clayton about his views on initial public offerings that include mandatory arbitration clauses for resolving issuer/shareholder disputes. This is not an item on the SEC’s agenda, Clayton advised, and it is not an issue he is anxious to address. He said it is a complex issue that involves other players as well, including the states. Pitt offered his view that it is advisable to place this issue on the back burner.
Pitt also asked Clayton about the benefits of a company going public. Clayton said that taking a company through that process is a healthy exercise that results in better financial statements. There is not a single cause, but multiple reasons for the lower number of companies going public, in his view. He said the SEC’s focus is on easing the process without diminishing investor protection.
Standard of conduct. Finally, Pitt asked Clayton to outline the benefits to investors of a meaningful standard of conduct for all market professionals. Clayton said the first benefit is clarity, and right now there is a great deal of confusion. Second is enhanced protection, and third is regulatory coordination. Pitt noted that the British have a standard that requires market professionals to put customers first, and said that most investors expect that. He suggested that getting rid of labels may achieve the objective. Clayton said we must get to the substance of what those labels mean.
Mandatory arbitration clauses. The SEC’s Investor Advocate, Rick Fleming, addressed the mandatory arbitration in his remarks at SEC Speaks the next day. In his view, taking away the right of shareholders to bring a class action law suit would be draconian and, he added, it may be counterproductive to the goal of promoting capital formation. He took note of Clayton’s remarks that he was not anxious to spend Commission resources on this issue and encouraged companies to consider the resistance they would encounter from investors, their advocates, and the Investor Advocate if they choose to adopt mandatory arbitration clauses.
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