SEC

Impressions on SEC Roundtable

The Securities and Exchange Commission held a Staff Roundtable on the proxy process on November 15, 2018, which John Baker and I attended. The Roundtable consisted of three panels on each of the following topics: 1. Proxy Voting Mechanics and Technology; 2. Shareholder Proposals; 3. The Role of Proxy Advisory Firms. Panelists consisted of corporate issuers, asset managers, institutional investors, academics, interest groups and proxy advisory firm representatives. The following is a summary of the third panel’s discussion on proxy advisory firms.

Chairman Clayton opened the discussion by expressing his personal goal to improve the quality of the voting process for long term investors, such that they can make more informed, company specific voting decisions. The Chairman requested that the panel continue to work on and present recommendations for change to the SEC. Notably, the Chairman did not make the same request after the other two panel discussions. Also notable was the absence of any discussion at all about the two no-action letters from 2004 which were recently withdrawn by the SEC.

Much of the panel’s time was spent discussing how proxy advisory firms operated, what services they provide, and how those services are used by asset managers, investment advisers, and issuers. The asset managers and institutional investors emphasized their fiduciary obligations owed to shareholders when voting proxies and they all spoke to the large operational efficiencies they realize by using proxy advisory firms. The asset managers were of the opinion that they likely could not meet their fiduciary obligations with regard to proxy voting without the information provided by proxy advisory firms, because they do not have the resources to perform the vast amounts of research and data aggregation entailed in the process.

Some discussion was spent questioning the potential conflicts of interest which may arise when proxy advisory firms advise both issuers and investment advisers. The investment advisers expressed little concern over such conflicts of interest, commenting that they make their own voting determinations based upon their own internal guidelines, not the guidelines of the advisory firm, and that information provided by proxy advisory firms is merely one factor among many factors used in consideration of how to vote. One issuer recommended that issuers be given the opportunity to review proxy advisory firm’s recommendations in advance of their dissemination, however this recommendation received a negative reception from the proxy advisory firms and investment advisers.

One of the last questions asked by the moderator was whether anyone saw a need for any SEC regulations to improve the process of how proxy advisory firms are used. No panelist expressed any desire for increased regulation over how proxy advisory firms are used, with the exception of one panelist, a CEO of a small proxy services firm, who thought there should be regulation to allow easier market access for new companies to compete in the proxy advisory business. Likewise, panelists expressed no desire to see Staff Legal Bulletin No. 20 changed. Chairman Clayton closed the panel with a remark where he again emphasized the importance of investors being able to make informed, company specific voting decisions and invited comments from interested parties.

Likely next steps re. New Jersey’s potential uniform fiduciary standard

New Jersey continues to receive public input (from both testimony and comment letters) regarding a potential uniform fiduciary standard (in pre-proposal form). Today, I was interviewed by ThinkAdvisor on what this pre-proposal, and others like it, means for compliance and what could materialize in 2019.

The SEC’s Investor Advisory Committee’s recommendations regarding Reg BI, Form CRS, etc.

The SEC recently released recommendations of the Investor Advisory Committee regarding the standards of conduct proposal. The recommendations can be found here.

Investor confusion persists

Latest on SEC standards of conduct proposal

Peirce posits enforcement teeth to Reg BI

RAND report may help address Form CRS concerns

SEC Investor Advisory Committee to hold Nov. 7 telephone meeting

The Securities and Exchange Commission’s Investor Advisory Committee will meet telephonically on Nov. 7 at 2 p.m. Eastern Time. The public is invited to listen to the meeting live using the dial-in details provided below. A recording of the meeting will be archived on the committee’s webpage for later listening.

SEC Chairman Jay Clayton

The committee will discuss the SEC’s Proposed Regulation Best Interest and Form CRS Relationship Summary (which may include a Recommendation of the Investor as Purchaser Subcommittee). The agenda for the meeting is available here.

Members of the committee represent a wide variety of investor interests, including those of individual and institutional investors, senior citizens, and state securities commissions. For a full list of committee members, see the committee’s webpage.

The Investor Advisory Committee was established to advise the SEC on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, and on initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace. The committee is authorized to submit findings and recommendations to the Commission.

Conference Call Details:  The public may dial in to the meeting toll-free by calling (800) 260-0702 in the United States or (651) 291-1170 outside the United States. Access Code: 455778.

SEC sides with brokers on stock exchange fees

‘September Morn’ – Trump Administration has SEC and DOL zero in on Fall 2019 for fiduciary rulemaking

By all accounts, the SEC and DOL continue to be coordinated on fiduciary duty rulemaking. The agendas for the SEC and DOL both have circled September 2019 as the goal for a final SEC rule on standards of conduct and concomitant DOL guidance, most likely in the form of one or more prohibited transaction exemptions. Both the SEC and DOL could act sooner than September, though we expect the SEC rulemaking to precede any additional DOL guidance. Larry Stadulis interviewed with Citywire USA on the implications of these developments.