U.S. Securities and Exchange Commission Chairman Gary Gensler testifies during a Senate Banking Committee hearing on September 12, 2023 at the Capitol in Washington, DC.
Drew Angerer | Getty Images
SEC Speaks, an annual two-day event, began Tuesday, offering clues as to what the Securities and Exchange Commission’s priorities will be next year.
This is a forum hosted by the Practical Law Institute where the SEC provides guidance to the legal community regarding rules, regulations, enforcement actions, and litigation. This event allows the SEC to convey its main message, and this year’s key issue is “disclosure.”
”[W]We have an obligation to update the rules of the road, keeping in mind the promotion of trust, efficiency, competition, and liquidity in our markets,” SEC Chairman Gary Gensler said at the beginning of the meeting. SEC division heads and senior staff will speak.
Building on Mr. Gensler’s opening remarks, future moves to shorten the securities settlement cycle from two days to one (T+1 on May 28), expanding the definition of an exchange to include more recent trades; will be discussed. platforms (e.g., RFQs, electronic trading platforms), consideration of changing stock trading quotes to the current penny subpenny level, creation of best execution standards for broker-dealers, and more competition for retail investor orders. (so-called payment order flow).
SEC’s mission
I often hear SEC officials say that the SEC’s role is to “protect investors, maintain fair, orderly, and efficient markets, and promote capital formation.”
That sounds like a pretty broad mandate, and it is. They do it on purpose. It was born out of the disaster of his 1929 stock market crash, the first episode of the Great Depression, the greatest economic disaster of the past 100 years.
Before 1933, and especially in the 1920s, securities of all kinds were sold to the public with wild claims, many of which were fraudulent. After the crash of 1929, Congress searched for causes, and fraudulent claims and lack of disclosure topped the list.
Congress then passed the Securities Act of 1933 and the following year the Securities Exchange Act of 1934, creating the SEC to enforce all new laws. It also required everyone involved in the securities industry (primarily securities companies and stock exchanges) to register with the SEC.
Under the 1933 Act, it was not illegal to sell distressed investments. It merely required disclosure; all relevant facts about the investment should have been disclosed, and investors should have been able to make their own decisions.
The 1933 Act was the first major federal law regulating the offering and sale of securities in the United States. This was followed by his Investment Company Act of 1940, which regulated mutual funds (eventually his ETFs), and the Investment Advisers Act of 1940, which required investment advisers to register with her SEC. .
About the agenda
Tuesday’s conference will be an opportunity for Gensler and his staff to tell everyone what they’re doing in more detail. The agency has six divisions, which he summarizes as disclosure, risk oversight, and enforcement.
Risk monitoring. In order to fulfill our mission to protect investors, it is important to understand what the risks are for investors. We have an economics and risk analysis department that does that.
Disclosure. Information disclosure is central to the entire game. That is the original requirement of the 1933 Act. The SEC has a corporate finance division that ensures that Corporate America discloses matters that could materially affect the company. This begins with the initial public offering and continues until the company goes public.
There is also a testing division that conducts the SEC’s national testing program. That’s exactly what it sounds like. The SEC identifies areas of high concern (such as cybersecurity, cryptocurrencies, money laundering, and climate change) and monitors American companies (such as investment advisers, investment companies, and broker-dealers) to ensure compliance with all regulations. And confirm that it has. Required Disclosures. Current hot topics include climate change, cryptocurrencies, and cybersecurity.
The problem is that the definition of what should be disclosed has evolved over the decades. For example, intense legal battles have erupted over recent regulations requiring companies to disclose climate risks. Many argue that this was not part of the SEC’s original mission. The SEC disagreed, arguing that this was part of its duty to “protect investors.”
Execution. The SEC can use the information it collects to recommend policies and can also refer companies to its formidable enforcement division if it feels they are not in compliance.
These guys are cops. They investigate securities law violations and bring civil lawsuits in federal court. This division will provide updates on the growing number of lawsuits involving the SEC.
Mutual funds, ETFs, investment advisors. Opinions will also be heard from departments that monitor investment trusts and investment advisors. Most people invest in the market through an investment advisor, usually buying mutual funds or ETFs. This is all regulated by the Investment Company Act of 1940 and the Investment Advisers Act of 1940. There is an investment management department that oversees all investment companies (including mutual funds, money market funds, closed-end funds, and ETFs) and an investment advisor. The department will share insights on some of the new disclosure requirements enacted over the past few years, particularly the rules adopted in August 2023 for advisers of private funds.
transaction. Finally, the Trading and Markets Division oversees everyone involved in trading, including broker-dealers, stock exchanges, and clearinghouses. Expect updated record-keeping requirements and shorter transaction cycles (US moving to one-day settlement). From his three-day settlement on May 28th (this is a big trade), and short sale disclosure.
Did we mention SPACs?
Donald Trump likely won’t attend the meeting, but the SEC significantly tightened its rules for special acquisition company (SPAC) disclosures in January. Trump’s company Truth Social went public on March 22 through a merger with a SPAC known as Digital World Acquisition Corporation. Trump Media & Technology (DJT)and it was disclosed on Monday, and the stock price fell about 22%.
Before the recent rule changes, executives marketing companies acquired by SPACs often made wild claims about the future profitability of these businesses—as opposed to the traditional initial public offering route. It was a claim that would never have been possible if it had been used. Under new SPAC rules adopted by the SEC, target companies are now legally responsible for anything they say about future results by assuming disclosure obligations.
In addition, companies are provided with “safe harbor” protection from certain legal liability when they make forward-looking statements. However, because IPOs are not afforded this “safe harbor” protection, forward-looking statements in IPO registrations are typically worded with great caution.
The rule also makes clear that SPACs do not have “safe harbor” legal protection for forward-looking statements, meaning companies can be more easily sued.
As I said earlier, Mr. Trump probably won’t appear at the meeting, but his message of “disclosure!” will probably get across. That will probably be the dominant refrain.