Now that the Senate has confirmed you as the next chair of the U.S. Securities and Exchange Commission, you have no doubt been giving serious thought to the budgetary and regulatory priorities of the agency. While we are in an era of extreme polarization in Washington, the good news is that this dynamic does not have to stymie reform with respect to the securities markets.
Investors, companies, and market professionals recognize that we are, for good reason, the envy of the world in the liquidity of our capital markets and our ability to fund new and innovative industries and will support regulatory changes designed to maintain this position. With that in mind, let me share with you some suggestions that may be useful in putting together your list of priorities.
First, any effort should begin with the primary mission of the SEC. It is, and always has been, the protection of investors. It is sometimes said that the agency’s mission is also to promote efficiency, competition and capital formation.
Congress did direct the SEC to consider these factors when adopting rules but in doing so made clear that “the foremost mission of the Commission has been investor protection” and that the legislation did “not alter the Commission's mission.” Of course investors benefit from these other factors but the first priority is their protection.
Second, there is considerable agreement that the disclosure regime for public companies desperately needs reform. But don’t be distracted by those who would frame the discussion as one of disclosure overload. The goal should be effective disclosure. Reform in this area can be the most revolutionary with respect to access and delivery of information.
With computers buying and selling securities based on discrete pieces of information gleaned from dozens or even hundreds of sources, the SEC’s system is woefully out-of-date. Catching up means creating more data provided in formats that are machine readable. In addition, the SEC is currently working on the second generation of EDGAR, the electronic data base for public filings.
This is an opportunity for a ground-breaking, generational change in the way information at the SEC is filed and accessed. Reform in these areas will provide an opportunity to make a positive and lasting contribution to the success of our markets well beyond the tenure of any one individual at the SEC.
Third, there have been calls for the imposition of significant restrictions on the use of the SEC’s shareholder proposal rule. These efforts are shortsighted and should be resisted. Proposals have emerged as a cost effective method for obtaining the collective views of shareholders, an important source of information for management.
Management’s awareness of shareholder views helps explain the rapid adoption of majority vote and access bylaws and the widespread willingness of many public companies to issue reports addressing environmental activities and political contributions. Limits on the availability of this rule will not reduce the importance of the issues to shareholders but will make management less informed when making decisions on matters important to shareholders.
Finally, the ongoing efforts to update the rules governing market structure should be given a high priority. The ground rules for the current structure were put in place more than a decade ago, when trades occurred in minutes or seconds rather than microseconds. Updating these rules will be a challenge, but are necessary to keep our markets efficient and globally competitive. The SEC has already proposed reforms to some rules; these should be completed but much more needs to be done in this area.
I wish you the best in your tenure as chair, and hope these areas will prove a fruitful place to build an effective and widely supported agenda.
J. Robert Brown is the Lawrence W. Treece Professor of Corporate Governance and Director of the Corporate & Commercial Law Program at the University of Denver’s Sturm College of Law. He served for four years as secretary to the U.S. Securities and Exchange Commission’s Investor Advisory Committee and currently serves as a member of the Public Company Accounting Oversight Board’s Standing Advisory Group.
The views expressed by contributors are their own and are not the views of The Hill.