Developments and Visions of the SEC for the Future

In alignment with the vision of Alan B. Levenson, co-founder of the Securities Regulation Institute, members of the “private bar and SEC staff” gathered together earlier this year in an effort to strengthen communications between the private and public players in the capital markets. SEC Chair Mary Jo White gave the keynote address, focusing her speech on the evolution of market technology, financial products, and the response to the SEC’s 2014 rulemaking initiatives. Moving forward, the SEC can be expected to maintain a similar agenda in these areas, as was discussed by White. A full transcript of the speech can be found here.

Over the course of its 80-year history, the SEC has maintained initiatives geared toward protecting investors, allowing companies of all sizes to raise funds, and ensuring the fair and efficient functioning of the markets. Constant technological advances, however, have forced the SEC to adapt to such technology and harness its accompanying benefits in order to further various objectives that remain in line with the SEC’s mission. The SEC utilizes these advances by creating new software and database systems. For example, the SEC developed the National Exam Analytics Tool (“NEAT”), an instrument that allows examiners to quickly and efficiently analyze huge amounts of transactional data. The NEAT system makes it easier for the SEC to monitor and, in turn, investigate suspicious behavior in the industry. Similarly, the new Market Information Data Analysis System (“MIDAS”) collects, records, and analyzes trading data ultimately helping the SEC and other regulatory bodies develop a better understanding of trending behaviors occurring in the market. The SEC has also emphasized the more effective utilization of existing technology to address vulnerabilities in market infrastructures. In the near future, this may include the adoption of Regulation SCI (Systems Compliance and Integrity), which would impose stricter requirements for the use of technology in the securities industry.

The financial products market is another area that has experienced huge changes in recent history and has been the subject of SEC reformation. First, the SEC has recommended, under the direction of the Dodd-Frank Act, creating greater transparency for security-based swaps and similar derivative transactions. Second, in response to concerns about the instability of money market funds, the SEC is considering two proposals formulated to work concurrently with amendments made in 2010 to “reduce interest rate, credit, and liquidity risks.” One such proposal would implement a “floating Net Asset Value (“NAV”) for prime institutional money market funds,” and the other would “impose a liquidity fee and permit . . . redemption gates.”  The SEC expects these reforms to be completed in 2014. Lastly, the SEC is looking to finalize new disclosure rules for asset-backed securities, spurred by the enactment of the Dodd-Frank Act.

These new ideas have inspired new ways of thinking amongst investors, regulators, and companies seeking investors. This has caused the SEC to “reconsider how companies can seek capital and communicate with potential investors.” Accordingly, the SEC has adopted rules to amend the requirements for general solicitation as part of a plan to implement the JOBS Act. Companies have been utilizing this new rule, with the amount of capital raised in private offerings surpassing that of public offerings in the last few years. Additional rules related to Crowdfunding and Regulation A have also been proposed by the SEC, and along with past developments, should allow for “companies of all sizes . . . to raise capital.” The SEC does not, however, intend for these new rules to change their goal of reforming disclosure requirements for public companies.

As a last area of focus for 2014, the SEC intends to continue its pursuit of vigorous enforcement.  The first step in addressing this goal is to allow the SEC to require “admissions of guilt [in settlements] where parallel criminal or other regulatory cases were brought with admissions.”  This change would force companies to have greater accountability for their actions, a goal also in line with the Financial Reporting and Audit Task Force.  Furthermore, the exchanges and alternative trading systems have been the target of recent SEC enforcement, with rules enacted to ensure that they are operated fairly and in accordance with applicable standards. 

Although these items are only part of the SEC’s agenda for the coming year, these examples indicate the potential issues the SEC may focus on in the upcoming months.  As Chairwoman White stated, “it is a constant, but always exciting, challenge to keep pace and indeed to accurately see around the next corner for the newest market developments or another innovative variant of, or new venue for, fraud.”  By keeping up with developments in market technology, financial products, and the vulnerabilities that they create in the market, the SEC boasts a plan that should help it remain true to its longstanding 3-prong mission.