4/13/2017
Securities
and Exchange Commission
Open
Meeting
Wednesday,
April 13, 2016
Key
Topics & Takeaways
-
Approved Disclosure
Concept Release: The Securities and Exchange Commission (SEC)
unanimously agreed to issue a concept release on modernizing certain
requirements for certain business and financial disclosures.
- Conduct Rules for
Security-Based Swap Dealers: The SEC voted to approve a final
rule establishing business conduct requirements for security-based swap (SBS)
dealers (SBSDs) and major security-based swap participants in a 2-1 vote, with
Commissioner Piwowar dissenting.
- Effects of New Conduct
Rules: The SEC’s Flannery asserted that the conduct rules will decrease
the “significant informational advantages” that SBSDs enjoy over their less
sophisticated counterparties. He also acknowledged that the costs
of that covered SBS entities would face with the new rules may be passed
on to counterparties in the form of higher transaction costs, and that SBS
dealers may be less likely to make SBS recommendations or to intermediate
transactions with some counterparties.
Speakers
-
Mary Jo White, SEC Chair
- Angie Kim, Division of
Corporation Finance, SEC
- Mark Flannery,
Division of Economic and Risk Analysis
- Kara Stein, Commissioner,
SEC
- Michael Piwowar,
Commissioner, SEC
- Lourdes Gonzales,
Division of Trading and Markets
Agenda Item 1: Concept Release on Modernizing Certain Business
and Financial Disclosure Requirements
In
her opening remarks, White explained that disclosure requirements are designed
to foster transparency, honesty and confidence in the markets. She noted
that Regulation SK is a key tool for advancing those goals and does so in a
principles-based fashion with a specific emphasis on the materiality of
information disclosed. White explained that optimizing the disclosure
framework is a “crucial ongoing responsibility” of the SEC because of its
critical importance to investors. White noted that the concept release
focuses on business and financial disclosures in companies’ periodic reports,
and will also provide consideration of the compensation and governance
information required in proxy statements. She noted that the concept release
also considers the increasing amount of attention being paid to sustainability
matters by investors. White foreshadowed that the Commission’s work on
disclosure effectiveness will continue with several working groups dedicated to
this effort.
Angie Kim, Division of Corporation Finance
Kim
explained that the concept release seeks input on the overall disclosure
framework, specific line item disclosure requirements, and the presentation and
delivery of information to investors. Further, she noted that the request for
comment seeks input on whether companies should assume a level of investor
sophistication, and whether rulemaking in this area will promote efficiency,
competition and capital formation.
Mark Flannery, Division of Economic and Risk
Analysis
Flannery
explained that the disclosure modernization initiative’s efforts to reduce
information asymmetries will be associated with increased costs for
registrants. He expressed particular interest in receiving public
comments that identify specific information that is important for investment
and voting decisions, as well as information on how different audiences access
and digest information about registrants.
In
her remarks,
Stein acknowledged that investors today have fundamentally different views on
what information is important to them (such as the increased interest in social
impact investing). Stein highlighted several issues that are not addressed in
the concept release, such as that the Commission’s form-based system is
“antiquated;” diversity and inclusion policies; environmental, social and
governance topics; and input on how to improve the central database for
corporate disclosures (EDGAR).
Piwowar
noted that the concept release was required under the Jumpstart Our Business
Startups (JOBS) Act that was passed by Congress four years ago. Piwowar
maintained that materiality is an “objective legal standard, not a subjective
political one,” and he maintained that the reasonable investor standard should
prevent any one shareholder from “hijacking” corporate resources to serve their
particular interests. Piwowar called on the Commission to examine how
information can best be disseminated to investors, including how to discourage
repetition and disclosure of immaterial information.
The
Commission unanimously agreed to issue the concept release on modernizing
certain disclosure requirements.
Agenda Item 2: Business Conduct Standards for Security Based
Swap Dealers and Major Swap Participants
Mary
Jo White, Chair
White
explained that the business conduct requirements for SBSDs fulfill the
Commission’s obligations under Title VII of the Dodd-Frank Act. She
argued that these rules will help establish a “robust” framework to promote the
integrity of the SBS market, and explained that SEC staff worked closely with
their counterparts at the Commodity Futures Trading Commission (CFTC) to ensure
the two agencies’ rules are “broadly consistent.” Among the requirements
in the new rules, all security-based swap entities would be required to
designate a chief compliance officer to administer the compliance program and
implement supervision programs. Firms would also be subject to specific
obligations anytime they transact in a principal capacity, such as requirements
to inform the counterparty of material information pertaining to the
transaction to allow the counterparty to assess the risks associated with the
SBS product. SBSDs would also be required to disclose daily pricing information
on availability of clearing for specified transactions. Further, when
dealing with “special entities” (such as municipalities, pension funds, among
others), SBSDs must take certain enhanced steps to comply with requirements,
including to ensure such entities have a qualified, independent representative,
to act in the best interest of these counterparties and specify in writing
whether they are acting as agent or principal when transacting with those
special entities.
Mark Flannery, Division of Economic and Risk
Analysis
Flannery
explained that the Division of Economic and Risk Analysis (DERA) examined the
likely effects of these new requirements on the markets, while acknowledging
that SBS entities play a central role in intermediating transactions in complex
and opaque swap markets. Flannery expressed the view that SBSDs enjoy
“significant informational advantages” relative to less sophisticated
counterparties and that the conduct rules may decrease such informational
asymmetries and strengthen counterparty protections. Flannery
acknowledged that the economic analysis illustrated that the costs of complying
with the new rules might be passed on to counterparties in the form of higher
transaction costs, and that they may decrease the willingness of dealers to
make SBS recommendations or to intermediate transactions with some
counterparties. Yet Flannery argued that these aspects of the rule are
less likely to result in some counterparties losing access to SBS markets, as
they may induce transacting through swap execution facilities (SEFs) instead of
bilaterally.
Lourdes Gonzales, Division of Trading and
Markets
Gonzales
explained that the staff recommends imposing these new conduct rules to
“improve fairness” in interactions between SBS swap dealers and their
counterparties, such as through the suitability standard. She also argued
that the framework will require SBS dealers to comply with rules designed to prevent
“pay to play” practices, and explained that foreign swap participants and SBS
dealers may seek to satisfy these new requirements through substituted
compliance. Gonzalez further provided some insight into the cross-border
application of such rules, noting that foreign registered SBSDs would be
required to comply with such requirements when transacting with a “US Person,”
and noted the Commission would further consider instances where US-located
personnel act to arrange, negotiate or execute a transaction. Gonzalez
noted, however, that substituted compliance framework will be available.
Kara
Stein, Commissioner
In
her remarks,
Stein recalled a few instances in which municipalities were sole complex swaps
without “full and fair disclosure” which resulted in significant losses. She
expressed support for the rules, arguing that tye will help address the “loss
of confidence” that investors have in these securities since these “abuses were
uncovered.” Stein noted that the Dodd-Frank Act mandated the SEC to
impose important protections and business conduct standards, and that
anti-fraud rules afforded the Commission with additional flexibility to impose
requirements necessary to protect investors. Stein expressed support for using
such flexibility to add a suitability standard to the SBS conduct rules.
Michael
Piwowar, Commissioner
Piwowar
lamented that the rule contains “unnecessary divergences” from currently
effective CFTC requirements, which he cannot support. Still, he explained that
he hopes the rule signals a “renewed commitment” to setting up an oversight
regime for the SBS market, and urged the Commission to finalize capital and
margin requirements which he said are “vital” to give certainty to firms’
structuring swap businesses.
The
Commission voted to approve the staff proposal in a 2-1 vote, with Piwowar
dissenting.
More
information about this meeting can be accessed here.
,Blog Tags:,Blog Categories:,Blog TrackBack:,Blog Pingback:No,Hearing Summaries Issues:Derivatives,Hearing Summaries Agency:SEC,Publish Year:2016
Securities
and Exchange Commission
Open
Meeting
Wednesday,
April 13, 2016
Key
Topics & Takeaways
-
Approved Disclosure
Concept Release: The Securities and Exchange Commission (SEC)
unanimously agreed to issue a concept release on modernizing certain
requirements for certain business and financial disclosures.
- Conduct Rules for
Security-Based Swap Dealers: The SEC voted to approve a final
rule establishing business conduct requirements for security-based swap (SBS)
dealers (SBSDs) and major security-based swap participants in a 2-1 vote, with
Commissioner Piwowar dissenting.
- Effects of New Conduct
Rules: The SEC’s Flannery asserted that the conduct rules will decrease
the “significant informational advantages” that SBSDs enjoy over their less
sophisticated counterparties. He also acknowledged that the costs
of that covered SBS entities would face with the new rules may be passed
on to counterparties in the form of higher transaction costs, and that SBS
dealers may be less likely to make SBS recommendations or to intermediate
transactions with some counterparties.
Speakers
-
Mary Jo White, SEC Chair
- Angie Kim, Division of
Corporation Finance, SEC
- Mark Flannery,
Division of Economic and Risk Analysis
- Kara Stein, Commissioner,
SEC
- Michael Piwowar,
Commissioner, SEC
- Lourdes Gonzales,
Division of Trading and Markets
Agenda Item 1: Concept Release on Modernizing Certain Business
and Financial Disclosure Requirements
In
her opening remarks, White explained that disclosure requirements are designed
to foster transparency, honesty and confidence in the markets. She noted
that Regulation SK is a key tool for advancing those goals and does so in a
principles-based fashion with a specific emphasis on the materiality of
information disclosed. White explained that optimizing the disclosure
framework is a “crucial ongoing responsibility” of the SEC because of its
critical importance to investors. White noted that the concept release
focuses on business and financial disclosures in companies’ periodic reports,
and will also provide consideration of the compensation and governance
information required in proxy statements. She noted that the concept release
also considers the increasing amount of attention being paid to sustainability
matters by investors. White foreshadowed that the Commission’s work on
disclosure effectiveness will continue with several working groups dedicated to
this effort.
Angie Kim, Division of Corporation Finance
Kim
explained that the concept release seeks input on the overall disclosure
framework, specific line item disclosure requirements, and the presentation and
delivery of information to investors. Further, she noted that the request for
comment seeks input on whether companies should assume a level of investor
sophistication, and whether rulemaking in this area will promote efficiency,
competition and capital formation.
Mark Flannery, Division of Economic and Risk
Analysis
Flannery
explained that the disclosure modernization initiative’s efforts to reduce
information asymmetries will be associated with increased costs for
registrants. He expressed particular interest in receiving public
comments that identify specific information that is important for investment
and voting decisions, as well as information on how different audiences access
and digest information about registrants.
In
her remarks,
Stein acknowledged that investors today have fundamentally different views on
what information is important to them (such as the increased interest in social
impact investing). Stein highlighted several issues that are not addressed in
the concept release, such as that the Commission’s form-based system is
“antiquated;” diversity and inclusion policies; environmental, social and
governance topics; and input on how to improve the central database for
corporate disclosures (EDGAR).
Piwowar
noted that the concept release was required under the Jumpstart Our Business
Startups (JOBS) Act that was passed by Congress four years ago. Piwowar
maintained that materiality is an “objective legal standard, not a subjective
political one,” and he maintained that the reasonable investor standard should
prevent any one shareholder from “hijacking” corporate resources to serve their
particular interests. Piwowar called on the Commission to examine how
information can best be disseminated to investors, including how to discourage
repetition and disclosure of immaterial information.
The
Commission unanimously agreed to issue the concept release on modernizing
certain disclosure requirements.
Agenda Item 2: Business Conduct Standards for Security Based
Swap Dealers and Major Swap Participants
Mary
Jo White, Chair
White
explained that the business conduct requirements for SBSDs fulfill the
Commission’s obligations under Title VII of the Dodd-Frank Act. She
argued that these rules will help establish a “robust” framework to promote the
integrity of the SBS market, and explained that SEC staff worked closely with
their counterparts at the Commodity Futures Trading Commission (CFTC) to ensure
the two agencies’ rules are “broadly consistent.” Among the requirements
in the new rules, all security-based swap entities would be required to
designate a chief compliance officer to administer the compliance program and
implement supervision programs. Firms would also be subject to specific
obligations anytime they transact in a principal capacity, such as requirements
to inform the counterparty of material information pertaining to the
transaction to allow the counterparty to assess the risks associated with the
SBS product. SBSDs would also be required to disclose daily pricing information
on availability of clearing for specified transactions. Further, when
dealing with “special entities” (such as municipalities, pension funds, among
others), SBSDs must take certain enhanced steps to comply with requirements,
including to ensure such entities have a qualified, independent representative,
to act in the best interest of these counterparties and specify in writing
whether they are acting as agent or principal when transacting with those
special entities.
Mark Flannery, Division of Economic and Risk
Analysis
Flannery
explained that the Division of Economic and Risk Analysis (DERA) examined the
likely effects of these new requirements on the markets, while acknowledging
that SBS entities play a central role in intermediating transactions in complex
and opaque swap markets. Flannery expressed the view that SBSDs enjoy
“significant informational advantages” relative to less sophisticated
counterparties and that the conduct rules may decrease such informational
asymmetries and strengthen counterparty protections. Flannery
acknowledged that the economic analysis illustrated that the costs of complying
with the new rules might be passed on to counterparties in the form of higher
transaction costs, and that they may decrease the willingness of dealers to
make SBS recommendations or to intermediate transactions with some
counterparties. Yet Flannery argued that these aspects of the rule are
less likely to result in some counterparties losing access to SBS markets, as
they may induce transacting through swap execution facilities (SEFs) instead of
bilaterally.
Lourdes Gonzales, Division of Trading and
Markets
Gonzales
explained that the staff recommends imposing these new conduct rules to
“improve fairness” in interactions between SBS swap dealers and their
counterparties, such as through the suitability standard. She also argued
that the framework will require SBS dealers to comply with rules designed to prevent
“pay to play” practices, and explained that foreign swap participants and SBS
dealers may seek to satisfy these new requirements through substituted
compliance. Gonzalez further provided some insight into the cross-border
application of such rules, noting that foreign registered SBSDs would be
required to comply with such requirements when transacting with a “US Person,”
and noted the Commission would further consider instances where US-located
personnel act to arrange, negotiate or execute a transaction. Gonzalez
noted, however, that substituted compliance framework will be available.
Kara
Stein, Commissioner
In
her remarks,
Stein recalled a few instances in which municipalities were sole complex swaps
without “full and fair disclosure” which resulted in significant losses. She
expressed support for the rules, arguing that tye will help address the “loss
of confidence” that investors have in these securities since these “abuses were
uncovered.” Stein noted that the Dodd-Frank Act mandated the SEC to
impose important protections and business conduct standards, and that
anti-fraud rules afforded the Commission with additional flexibility to impose
requirements necessary to protect investors. Stein expressed support for using
such flexibility to add a suitability standard to the SBS conduct rules.
Michael
Piwowar, Commissioner
Piwowar
lamented that the rule contains “unnecessary divergences” from currently
effective CFTC requirements, which he cannot support. Still, he explained that
he hopes the rule signals a “renewed commitment” to setting up an oversight
regime for the SBS market, and urged the Commission to finalize capital and
margin requirements which he said are “vital” to give certainty to firms’
structuring swap businesses.
The
Commission voted to approve the staff proposal in a 2-1 vote, with Piwowar
dissenting.
More
information about this meeting can be accessed here.