More crisis-related cases and more rulemaking, lots of it, are on the Securities and Exchange Commission's agenda in the months ahead, according to the agency's chairman.
Highlighting some of the recent mortgage-related, pay-to-play cases, accounting fraud, and insider-trading cases brought by the SEC, its chairman, Mary Schapiro, promised more to come.
"The pipeline is full and more cases will be coming—including more actions growing out of the financial crisis," she told attendees in a Feb. 5 speech at the SEC Speaks conference in Washington, D.C.
Along with the revamp of its Enforcement Division, Schapiro noted that a post-Madoff overhaul by the agency's Office of Compliance Inspections and Examinations is underway. She said the OCIE's new director, Carlo DiFlorio, is already undertaking a "top-to-bottom assessment, engaging in a serious dialogue with the staff, and identifying ways to improve our program even further."
Schapiro also offered a progress report on the revamp of the SEC's internal systems for tracking tips and complaints. In a "matter of weeks," she said the SEC will have fully centralized its system, and as promised, a new set of guidelines and protocols to govern how everyone should handle the tips they receive is forthcoming.
Looking ahead, she said the Commission will further upgrade its technology so that systems will be able not only to store complaints, but also to analyze them and "connect the dots that might not be readily apparent."
Meanwhile, the newly established Division of Risk, Strategy, and Financial Innovation, created as part of an effort to improve information sharing within the agency, has "parachuted into complex legislative matters demanding immediate specialized expertise," working with the other Divisions and Offices on a matters such as credit derivatives-based insider-trading litigation, securitization, proxy access rulemaking, and life settlements, Schapiro noted.
She also detailed several areas where the SEC plans to consider rulemaking in the year ahead. They include a rule proposal to provide additional information to investors on target-date funds and rule recommendations regarding the marketing of those funds; consideration of custody enhancements for broker-dealers; better point-of-sale disclosure for retail investors; the appropriateness of mutual fund 12(b)-1 fees; and rules aimed at creating a more robust regulatory framework for credit rating agencies.
Schapiro also said she's "hopeful" the SEC will adopt a proxy access rule, but didn't elaborate on when that proposal might come to a vote. The SEC tabled a planned vote on the controversial idea last fall and re-opened comment on the proposal in mid-December. In January, Schapiro said in a speech that the Commission was "nearing a vote" on the proposal.
More money market fund reforms are also on the agenda. Ideas under consideration include a floating, mark-to-market NAV for money market funds, rather than the stable $1 price; mandatory redemptions-in-kind for large redemptions; "real time" disclosure of "shadow" NAV; a private liquidity facility; and a possible "two-tiered" system of money market funds, with a stable NAV only for funds subject to greater risk-limiting conditions and possible liquidity facility requirements.
As it continues its review of market structure, Schapiro said votes are ahead on proposed rules concerning flash orders; proposed rules that would generally require investors' interest in a stock be made publicly available, instead of just to a select group operating with a dark pool and proposed rules that would effectively bar broker-dealers from providing customers with unfiltered access to exchanges or alternative trading.
The Commission is also expected to consider staff recommendations in the Spring to have the self-regulatory organizations develop and implement a consolidated audit trail that captures customer and order event information across markets to help improve market surveillance. Currently, the SROs have their own separate audit trail systems to track information relating to orders in their respective markets. However, Schapiro noted that it's difficult to connect the dots and ferret out wrongdoing since each market is only able to readily see trading activity in its own market.
In the coming weeks, the agency will also consider proposals to restrict short selling. In the past year, the SEC adopted rules to curb potential abusive "naked" short selling, which Schapiro said "significantly reduced" the number of times short sellers failed to deliver securities.
- Thought Leadership