The nomination of Wall Street corporate lawyer and dealmaker Jay Clayton to chair the Securities and Exchange Commission (SEC) marks a break in what had been a streak of SEC chairs who came into the office with an enforcement or policy background.
When he appears before the Senate Banking Committee on Thursday for his confirmation hearing, it will be incumbent upon the members of the committee to determine just what his focus and priorities will be. Put another way, Senators need to find out from Clayton just who he will be working for at the SEC.
Will it be the Wall Street banks he’s spent his career representing, or the agency whose core mission is, along with facilitating capital formation, to protect investors, and maintain fair, orderly and efficient markets?
Many of Clayton’s powerful clients have spent millions trying to weaken and roll back the Wall Street reforms enacted into law in 2010, after the most severe financial and economic crisis since the Great Depression.
For example, these reforms authorized the SEC to require broker-dealers act as fiduciary for their clients when recommending financial products, and they created a now-successful whistleblower rewards and protections program at the SEC so that those good Samaritans on Wall Street who risk their careers by giving vital information to the SEC to stop fraudsters are protected and rewarded.
The reforms empowered investors so they can have a say on CEO’s compensation packages, which were shown to have direct role on the behavior of executives at the largest Wall Street firms in the years preceding the financial crisis.
They also improved the internal governance of the SEC by requiring regular audits of its finances, independent analysis of how the agency’s supervisors are performing, the competency level of the professional staff, the use of agency’s funds, etc.
However, some key issues still require attention. One of the first things Clayton ought to do Thursday is commit to completing the remaining rules under the Wall Street reform act on executive compensation and swaps and faithfully implement and enforce the completed ones.
Beyond these policy goals, Clayton will have both authority and staff expertise to move quickly on the following five areas, all in pursuit of fulfilling the agency’s mission.
He must say how the SEC will vigorously pursue Wall Street wrongdoers, regardless of the size of the firm or stature of its executives. He must acknowledge that without strengthening and enforcing the rule of law on Wall Street, there cannot be fair capital markets or capital formation.
Clayton must say how he will improve corporate disclosures and investors’ corporate suffrage rights, including adopting a universal proxy. The SEC should empower shareholders to better engage in the governance of the corporations of which they are part owners.
He must instill confidence back into investors’ minds by speaking to what he intends to do against predatory high-frequency trading and how to fix the clearly broken public exchanges.
Clayton's SEC must address the conflicts of interest that currently exist between broker-dealers and exchanges. The commission must champion much-needed transparency measures to shed light on our fixed-income markets.
In addition, the undue influence of industry on self-regulatory organizations must be remedied. Market structure issues will not fix themselves. They require proactive and far-reaching solutions from a regulator that is statutorily required to uphold the public interest.
Clayton must ensure that our mutual funds and money market funds will never face the serious risk of destabilizing runs that they did during the financial crisis. He must guarantee that investors in these funds are not bilked by excessive fees.
Importantly, Clayton should, once-and-for-all, commit to fixing the confusing and harmful regulatory regime over investment advisers and broker-dealers. All investors deserve to have an investment professional who is a fiduciary.
On Thursday, Clayton also needs to clarify whether he intends to roll back long-standing disclosure rules. He will need to prove how these deregulatory actions will create jobs, encourage more IPOs and, most fittingly, be good for the forgotten men and women President Trump swore to help.
Clayton, if he is confirmed, will assume the awesome and weighty responsibility of protecting this nation’s investors, while helping companies access the capital they need to grow and employees earn the wages they deserve.
Part of this means supporting tough rules and enforcement for Wall Street giants when such action is necessary to protect the broader public. The shortest path to economic growth and job creation is to put Main Street investors’ interests first and ensure that rule of law on Wall Street is enforced and strengthened.
Lev Bagramian is a senior securities policy advisor at Better Markets, a non-profit, non-partisan and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets.
The views expressed by contributors are their own and not the views of The Hill.