On February 20, 2015, Chairwoman of the United States Securities and Exchange Commission ("SEC"), Mary Jo White, spoke at the 2015 SEC Speaks Conference in Washington, D.C. During her speech, Chairwoman White addressed a number of topics in providing an overview of the SEC's activities and initiatives during 2014.
In particular, Chairwoman White commented on reforms made with respect to U.S. money market funds via the promulgation of new SEC rules in July 2014. Under these new rules, institutional prime money market funds will be required to maintain a floating net asset value, resulting in daily fluctuating share prices, and all money market funds will be subjected to enhanced diversification, disclosure, reporting and stress testing requirements. In addition, boards of non-governmental money market funds will be provided new tools to address runs on such funds, including the ability to impose liquidity fees and temporarily suspend redemptions.
Chairwoman White also highlighted the implementation of new regulations regarding securities-based swaps in the previously unregulated over-the-counter derivatives market, including the advent of a new registration system which, according to White, will provide regulators with additional oversight tools, while at the same time providing market participants with necessary price transparency. White also noted the implementation of similar reforms in the assets-backed securities market, including enhanced disclosure requirements and rules requiring the retention of credit risk to more closely align the incentives of securities issuers with those of their investors. The SEC's adoption of a comprehensive package of reforms for the regulation and oversight of credit rating agencies was also highlighted.
For the securities litigator, however, the most interesting part of Chairwoman White's address was in her comments regarding the SEC's enforcement and examination efforts in 2014. In particular, White reported that the SEC brought 755 enforcement actions and obtained over $4.1 billion dollars in monetary relief, both agency records. White also noted a number of "first-of-their kind" enforcement actions brought in 2014, including cases against high-frequency trading firms; cases for failure to have adequate risk controls before providing market access to customers; a case based on the SEC's whistleblower anti-retaliation authority; a case against a private equity firm relating to allocation of fees and expenses; an emergency action to halt a fraudulent municipal bond offering; and a case against a broker-dealer for failing to have policies and procedures to protect against misuse of a retail customers' non-public information.
In concluding her speech, Chairwoman White highlighted three areas on which the SEC will focus in 2015: a comprehensive review of the fundamentals of U.S. market structure; an increased focus on the activities of asset managers; and the facilitation of capital formation for smaller securities issuers.
I found Chairwoman White's comments regarding the SEC's increased focus on asset managers particularly interesting. Specifically, White noted that the SEC was in the process of developing initial recommendations to address areas reflective of what White described as the "increasingly complex portfolio composition and operations of today's asset management industry." In particular, White noted the development of recommendations designed to (1) modernize and enhance data reporting for both funds and investment advisers; (2) more effectively identify and manage risks related to the diverse composition of investor portfolios, including liquidity management and the use of derivatives in mutual funds and ETFs; and (3) more effectively plan for the impact of market stress or events where the advisor is no longer able to serve its clients. White also addressed, in passing, further consideration of whether to adopt a uniform fiduciary duty for broker-dealers.
In sum, I took Chairwoman White's speech as a strong indicator that the SEC does not intend to take its foot off the gas with respect to its increased regulation of U.S. securities markets. Quite to the contrary, all signs point to vigorous enforcement of existing regulations, and promulgation of new rules and regulations to address what the SEC sees as potential areas for investor abuse and market manipulation.
A link to the complete text of Chairwoman White's February 20, 2015 speech can be found here.
Rhett Owens (rrowens@burr.com) is an associate in the Securities Litigation Practice Group at Burr & Forman, LLP. He is licensed in Alabama and significant experience in litigating cases in FINRA-administered arbitration proceedings. © 2015 by R. Rhett Owens (all rights reserved)