SEC Investor Advisory Committee Holds Meeting on Subcommittee Priorities
AT TODAY’S INVESTOR ADVISORY COMMITTEE MEETING, SEC staff and Committee members discussed efforts to implement the Jumpstart Our Business Startups (JOBS) Act and were briefed on subcommittee reports and recommendations related to the legislation. The Committee was created by the Dodd-Frank Act to advise on a host of regulatory priorities, and on initiatives to protect investor interests and promote investor confidence. A list of members can be found here.
Commissioners Elisse Walter and Daniel Gallagher were in attendance and provided short opening remarks. Gallagher, in particular, raised concern with the looming fiscal cliff and noted daily news of institutional investors engaging in hedging activities related to the potential movement in the capital gains rate. He then noted that retail investors with limited expertise may be caught off guard by market changes and that efforts to raise awareness for those investors should be discussed. Gallagher said he will be talking publicly about the issue next week.
Staff discussed the SEC’s recent proposing release that seeks to implement the JOBS Act provisions related to general solicitation and advertising in securities offerings. Specifically, staff provided an overview of steps issuers must take to verify that purchasers of securities are accredited investors.
Members questioned whether sufficient protections for unsophisticated investors existed and asked if the accredited investor definition can include the net worth standard or another provision that would act as a substitute for being well-informed. Staff said the Commission would have to conduct a review of the accredited investor definition, but noted that a review of the net worth and income standards were not contemplated as part of the rulemakings.
Members also asked if any rules governed the actual solicitation materials. Staff responded that the proposing release does not put any restrictions on the form of solicitations sent to investors.
With regard to crowdfunding measures, members asked if the portals or brokers have mechanisms to ensure the funding caps for investors are not exceeded. Staff explained that some portals believe such mechanisms can be implemented through third party solutions, but that the Commission is still considering ways to address the issue.
Members questioned what the legal liability of portals is with regard to fraudulent offerings. Staff said the Commission has not yet taken a position on what the liability of portals would be. One member suggested the liability regime be akin to that of issuers while ensuring such portals are adequately capitalized. Another member suggested that investor protection concerns be addressed through enforcement resources that would receive funding support through fees paid by the portals. Walter added her assumption that applicable portals would be subject to fees once they become members of the Financial Industry Regulatory Authority (FINRA). Portals seeking to offer such intermediary services would be required to register with FINRA and be subject to self-regulatory organization oversight.
Subcommittee Recommendations:
After a lengthy break for closed meetings, each subcommittee presented their recommendations to the full committee.
The Investor-As-Purchaser Subcommittee reported that it is making important progress on its initial list of priority issues, which includes a single Fiduciary Duty standard, the symmetric approach to cost-benefit analysis, target-date funds, money market mutual fund reform, and JOBS Act implementation.
With regards to the JOBS Act, the Subcommittee presented the Full Committee with a “consensus” draft rule to remove the ban on general solicitation, which included a list of preliminary observations and recommendations. The draft rule was approved by six of the seven members of the Subcommittee. Subcommittee Member Craig Goettsch highlighted Congress’ criticism of the Commission on this issue and said the rule is the Subcommittee’s “top priority.” However, Goettsch noted that they are behind the statutory issuance deadline of October 5, 2012, and motioned for the Full Committee to reconvene via teleconference on October 12, 2012 to vote on the rule. The motion passed unanimously.
The Investor-As-Owner Subcommittee discussed “proxy plumbing” and two Dodd-Frank mandated rulemakings during its closed meeting. Specifically, the Subcommittee said it is preparing a recommendation on the Commission’s final executive compensation rule and is working on issues related to Section 926 of Dodd-Frank. Long term, the Subcommittee said it will be focusing on enhanced reporting standards, including Environmental, Social and Governance (ESG) reporting, and working with the newly created Office of Minority and Women Inclusion.
The Investor Education Subcommittee said it is considering whether a Self-Assessment Program is needed to deal with concerns about employer-based lump-sum payouts to retirees. The Subcommittee also said it is reviewing Title II of the Dodd-Frank Act, specifically looking at the safe harbor considerations in the statute. Additionally, the Subcommittee said it will be engaging in two exploratory actions including a public services announcement program related to investor education and public pension trustee qualifications, which the Subcommittee indicated could be repurposed to cover board members of public companies and mutual funds.
The Market Structure Subcommittee said it discussed issues related to market fairness, market risk, competitiveness in the market and JOBS Act implementation, including decimalization. The Subcommittee also outlined its short-term agenda, which includes work on the decimalization study and other JOBS Act mandates, customer collateral protections, funding portals, and issues arising from the Depository Trust and Clearing Corporation study of settlement times.
At the conclusion of today’s meeting the Committee indicated that its next meeting will be in early December.
AT TODAY’S INVESTOR ADVISORY COMMITTEE MEETING, SEC staff and Committee members discussed efforts to implement the Jumpstart Our Business Startups (JOBS) Act and were briefed on subcommittee reports and recommendations related to the legislation. The Committee was created by the Dodd-Frank Act to advise on a host of regulatory priorities, and on initiatives to protect investor interests and promote investor confidence. A list of members can be found here.
Commissioners Elisse Walter and Daniel Gallagher were in attendance and provided short opening remarks. Gallagher, in particular, raised concern with the looming fiscal cliff and noted daily news of institutional investors engaging in hedging activities related to the potential movement in the capital gains rate. He then noted that retail investors with limited expertise may be caught off guard by market changes and that efforts to raise awareness for those investors should be discussed. Gallagher said he will be talking publicly about the issue next week.
Staff discussed the SEC’s recent proposing release that seeks to implement the JOBS Act provisions related to general solicitation and advertising in securities offerings. Specifically, staff provided an overview of steps issuers must take to verify that purchasers of securities are accredited investors.
Members questioned whether sufficient protections for unsophisticated investors existed and asked if the accredited investor definition can include the net worth standard or another provision that would act as a substitute for being well-informed. Staff said the Commission would have to conduct a review of the accredited investor definition, but noted that a review of the net worth and income standards were not contemplated as part of the rulemakings.
Members also asked if any rules governed the actual solicitation materials. Staff responded that the proposing release does not put any restrictions on the form of solicitations sent to investors.
With regard to crowdfunding measures, members asked if the portals or brokers have mechanisms to ensure the funding caps for investors are not exceeded. Staff explained that some portals believe such mechanisms can be implemented through third party solutions, but that the Commission is still considering ways to address the issue.
Members questioned what the legal liability of portals is with regard to fraudulent offerings. Staff said the Commission has not yet taken a position on what the liability of portals would be. One member suggested the liability regime be akin to that of issuers while ensuring such portals are adequately capitalized. Another member suggested that investor protection concerns be addressed through enforcement resources that would receive funding support through fees paid by the portals. Walter added her assumption that applicable portals would be subject to fees once they become members of the Financial Industry Regulatory Authority (FINRA). Portals seeking to offer such intermediary services would be required to register with FINRA and be subject to self-regulatory organization oversight.
Subcommittee Recommendations:
After a lengthy break for closed meetings, each subcommittee presented their recommendations to the full committee.
The Investor-As-Purchaser Subcommittee reported that it is making important progress on its initial list of priority issues, which includes a single Fiduciary Duty standard, the symmetric approach to cost-benefit analysis, target-date funds, money market mutual fund reform, and JOBS Act implementation.
With regards to the JOBS Act, the Subcommittee presented the Full Committee with a “consensus” draft rule to remove the ban on general solicitation, which included a list of preliminary observations and recommendations. The draft rule was approved by six of the seven members of the Subcommittee. Subcommittee Member Craig Goettsch highlighted Congress’ criticism of the Commission on this issue and said the rule is the Subcommittee’s “top priority.” However, Goettsch noted that they are behind the statutory issuance deadline of October 5, 2012, and motioned for the Full Committee to reconvene via teleconference on October 12, 2012 to vote on the rule. The motion passed unanimously.
The Investor-As-Owner Subcommittee discussed “proxy plumbing” and two Dodd-Frank mandated rulemakings during its closed meeting. Specifically, the Subcommittee said it is preparing a recommendation on the Commission’s final executive compensation rule and is working on issues related to Section 926 of Dodd-Frank. Long term, the Subcommittee said it will be focusing on enhanced reporting standards, including Environmental, Social and Governance (ESG) reporting, and working with the newly created Office of Minority and Women Inclusion.
The Investor Education Subcommittee said it is considering whether a Self-Assessment Program is needed to deal with concerns about employer-based lump-sum payouts to retirees. The Subcommittee also said it is reviewing Title II of the Dodd-Frank Act, specifically looking at the safe harbor considerations in the statute. Additionally, the Subcommittee said it will be engaging in two exploratory actions including a public services announcement program related to investor education and public pension trustee qualifications, which the Subcommittee indicated could be repurposed to cover board members of public companies and mutual funds.
The Market Structure Subcommittee said it discussed issues related to market fairness, market risk, competitiveness in the market and JOBS Act implementation, including decimalization. The Subcommittee also outlined its short-term agenda, which includes work on the decimalization study and other JOBS Act mandates, customer collateral protections, funding portals, and issues arising from the Depository Trust and Clearing Corporation study of settlement times.
At the conclusion of today’s meeting the Committee indicated that its next meeting will be in early December.