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SEC to Act Quickly on Risk Disclosure Rules

Source: WSJ


Posted on 09 Jul 2010

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The Securities and Exchange Commission will act quickly to revise corporate risk disclosure requirements and also consider more sweeping recommendations on executive compensation disclosures and easy-to-read corporate filings, SEC Chairman Mary Schapiro said Friday.

The SEC also is looking at trading activities such as hedging, shorting, arbitrage and certain types of market orders, to ensure that all investors have access to a highly complex and technologically sophisticated trading market, Ms. Schapiro said in the text of prepared remarks.

SEC staffers now are re-evaluating all corporate filing forms and disclosure requirements, asking whether the information that is being sought is "still relevant," Ms. Schapiro said.

"After this review, I expect the staff will present individual recommendations that we can act on quickly, such as revising the risk disclosure requirements," Ms. Schapiro said in the text of her speech to the Society of Corporate Secretaries and Governance Professionals.

SEC staff "also will likely present more sweeping recommendations that will take more time, such as possibly changing filing formats so that basic information can be more easily digested by investors and updated by companies," she said.

The SEC will be conducting inquiries into how corporations disclose their executive compensation policies, as directed by a financial overhaul bill that is expected to be signed into law this summer.

These are areas that we recognize are quite complex, and we expect to be well-served by public comments," Ms. Schapiro said of executive compensation disclosures.

The SEC will be taking incremental rule-making steps in the areas of corporate disclosures and shareholder voting while also looking at the big picture of how investors interact with corporate boards.

Next week, the commission is slated to vote on a "concept release" that will study the mechanics of shareholder voting, sometimes called "proxy plumbing." The idea is to open a dialogue about how the proxy voting system can be made more accurate and transparent.

Ms. Schapiro said the commission will take a particular look at proxy advisers in this area. "We will be looking at communications and shareholder participation, and we will be looking at the role of proxy advisers, among other subjects," she said.

The financial overhaul bill also gives the SEC a host of new responsibilities and tools for enforcing securities laws, among them new authority over the exotic financial products called derivatives, hedge funds and credit-rating agencies.

Working with the Commodity Futures Trading Commission on derivatives rules, the SEC will be writing rules that address "capital and margin requirements, mandatory clearing, the operation of execution facilities and data repositories, and reporting and recordkeeping obligations," Ms. Schapiro said.

The SEC will continue working with the major trading exchanges on new rules to ensure a "level playing field" for all investors in a technologically sophisticated and fragmented market, she said.

The May 6 "flash crash" is an example of the problems that can be created when a complex market system isn't equipped with appropriate backstops, according to Ms. Schapiro.

In attempting to dissect the May 6 event, the SEC is looking into "potentially significant imbalances between buyers and sellers that may have been exacerbated by the withdrawal of liquidity usually provided by a variety of market participants," she said.

On the afternoon of May 6, the Dow Jones Industrial Average plummeted nearly 1,000 points before staging a partial recovery. Regulators have said there was no single cause for the crash, citing a confluence of events, including the interconnected nature of various futures and stock markets.

The SEC has a number of new rules in the works to prevent such a crash from recurring. It already has installed a "circuit breaker" for individual stocks that requires a pause in a stock's trading if it rapidly changes price. Exchanges and regulators also are looking at uniform rules for how to break erroneous trades, if that becomes necessary.

Other ideas from regulators include banning "stub quotes," offers to sell or buy that are far outside a stock's price range, and new criteria for "market makers" who get special trading privileges for providing liquidity.

"We are working to ensure that accelerating technology and evolving trading strategies are not creating a two-tiered marketplace that leaves many investors at a significant disadvantage," Ms. Schapiro said.


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