July 26, 2017

U.S. Chamber of Commerce – “Discussion with SEC Chairman Jay Clayton”

Participants

• Jay Clayton, Chairman, Securities and Exchange Commission (SEC)
• David Hirschmann, President and CEO, Center for Capital Markets Competitiveness

Discussion

David Hirschmann and Chairman Clayton began by discussing Clayton’s priorities as Chairman of the SEC, which include improving capital formation and stopping bad actors in the marketplace. Clayton said he would avoid the tendency to “take capital markets for granted” and to assume that capital markets could thrive no matter what regulations are placed on them. Hirschmann later asked Clayton for his thoughts on the efficiency of U.S. capital markets. Clayton said that while he believes these markets are very efficient for large cap companies, the fixed cost of public reporting compliance and the liquidity premiums for small and mid-cap company securities are a hindrance to U.S. capital markets.

Clayton was later asked how the SEC could help improve capital markets in the U.S. Clayton responded by praising the Jumpstart Our Business Startups (JOBS) Act of 2012, saying it had benefits for companies trying to go public without compromising investor protections. Clayton also said that the SEC would look for “low hanging fruit” where agency actions could be taken to quickly improve public capital markets, and cited the recent decision by the SEC’s Office of Corporate Finance to expand the popular confidential filing rules to more companies. Clayton urged industry stakeholders to bring the SEC other, similar ideas.

Hirschmann and Clayton had a wide-ranging discussion on corporate disclosures and ways to improve their effectiveness. Clayton said he wants corporate disclosures to have information that is relevant to investor decision-making and hinted that there are components of disclosures today that are not relevant. Clayton also talked about the difficulty of “proving compliance” with regulations and said that compliance costs are a serious burden on corporate boards and management. When asked specifically about the pay-ratio rule, Clayton said he was “mindful” of the costs it would impose but reminded the audience that the compliance date is currently locked in.

When asked about the proper “best interest standard” for investment advisors, Clayton said it would be “extremely disappointing” if a best interest standard reduced choice for investors. Clayton said, “the market would benefit from greater clarity” around the standard and said the SEC is working with the Department of Labor (DOL) on the issue.

On the topic of proxy advisors, Clayton said that proxy advisors meet a real demand by investors and said their development was organic. Clayton caveated this by saying that now that proxy advisors wield influence in public capital markets, the SEC needs to evaluate their role in these markets. Clayton said the SEC should look at the cost to the “quiet” investors of proxy proposals and proxy advisors, and said that though some shareholder proposals pass with majorities voting for them, other proposals interest only a few number of investors.

On the topic of regulatory coordination, Clayton said that it is important that U.S. regulators not leave any “gaps” but also that they prevent “duplication.” Clayton was also asked specifically about the SEC’s engagement with European Union financial regulators on the Markets in Financial Instruments Directive (MiFID) II rules. Clayton said that the SEC would work with EU regulators to address regulatory issues.

During the audience question and answer period, Clayton was asked if the SEC would offer guidance on a definition for “materiality” in the municipal obligation space. Clayton said that the municipal market is vast and variegated and that having flexible standards for materiality would be helpful for investors and issuers. Clayton also said he hopes the courts will help outline the definition of “materiality” but noted there is “no easy fix” for the issue.

For more information on this event, please click here.