Schapiro Highlights Past Year’s and Upcoming Initiatives at PLI Conference

SEC Chair Mary Schapiro reviewed the highlights of the past year along with upcoming rule initiatives in remarks at the Practising Law Institute’s conference known as “SEC Speaks.” Schapiro reported that the agency has brought in new leaders, streamlined its procedures and reformed the way it operates. In addition to creating more effective regulation, the SEC has been engaged in the regulatory reform debate. Schapiro said the SEC has initiated the most significant investor-focused rulemaking agenda in decades.

Schapiro acknowledged that statistics are not the best way to measure success, but she believes the past 12 months reflect a significant output in the SEC’s enforcement activities. The SEC sought more than twice as many temporary restraining orders and asset freezes. It issued over two times as many formal orders of investigation, obtained about $540 million more in disgorgement orders and more than twice as much in penalty orders. The SEC also filed about 10% more actions overall.

Schapiro added that the SEC has brought a wide range of complex actions, including difficult mortgage-related cases. The pipeline is full, she said, and more cases will be coming, including cases related to the financial crisis.

The SEC is reforming the Office of Compliance Inspections and Examinations. The new director is undertaking a top-to-bottom assessment, according to Schapiro, in order to identify and improve the program.

The SEC is improving its technology with respect to the tips and complaints that are received. A new centralized system should be up and running within weeks. Schapiro said the staff has a new set of guidelines and protocols for the way tips will be handled.

The SEC is focusing on promoting a culture of collaboration. Schapiro has stressed the importance of information-sharing. The new Division of Risk, Strategy and Financial Innovation has attracted experts to respond to the latest Wall Street financial innovations.

Schapiro said the past year includes one of the most active rulemaking agendas in years. She also previewed some of the upcoming initiatives which include actions aimed at target date funds, point of sale disclosure, Rule 12b-1 fees, NRSROs, proxy access and money market funds. In the area of market structure, the Commission this year will vote on proposed rules relating to flash orders, dark pools and market access.

Schapiro said the SEC will also act on a recommendation by the staff to create a consolidated audit trail to assist investigators. The self-regulatory organizations have their own separate audit trail systems, she explained, but it is difficult to connect the dots where trading activities occur across various markets. Schapiro expects the staff to consider recommendations this spring to have the SROs develop and implement a consolidated audit trail that captures customer and order event information across markets.

Commissioner Casey’s Remarks

Commissioner Kathleen Casey said that scrutiny of the SEC is both deserved and expected. She outlined her top 10 regulatory principles, the first of which is that regulators should act with humility. Sometimes we don’t know what we don’t know, she said. Regulators must always consider the potential for unintended consequences, she added.

Market solutions are usually preferable to government solutions, Casey added. Any new regulations must be clear about their objectives. Empirical evidence should guide regulatory decisions. Casey said that benefits must exceed the costs or the initiative should not go forward. Regulators should provide certainty to market participants.

The opportunity costs of pursuing a regulatory initiative should be carefully considered. Casey pointed to the SEC’s recent issuance of interpretive guidance on climate change, which she opposed, as an example. Regulators must act in the interest of all investors in the markets, she said. Finally, Casey said that regulators must be aware of fighting the last war. They should gauge whether the markets have self-corrected or are in the process of self-correcting. The courts have often reminded the SEC of this point in recent years, she said.