June 29, 2018

US Chamber of Commerce “A Discussion with US Securities and Exchange Commissioner Mike Piwowar”

Discussion

Mike Piwowar, Commissioner, U.S. Securities and Exchange Commission (SEC)

Piwowar, in conversation with Thomas Quaadman, Executive Vice President, U.S. Chamber of Commerce Center for Capital Markets Competitiveness, discussed his time at the SEC, the actions the SEC has taken during his tenure, and his views on future developments at the agency. Piwowar stated that he has had many distinct jobs at the SEC, joining the agency as a member of the minority at a time when there was an “onslaught” of Dodd-Frank rulemakings the agency was undertaking. Piwowar said he and former Commissioner Dan Gallagher, also in the minority at the time, worked together to write “articulate dissents” on rulemakings so that in the event Republicans took back the White House or Congress, they would have ideas for what to change or repeal. Piwowar also discussed his time as a member of the Commission when it only consisted of three members, the required number to call a quorum, and how he strategically used this leverage to advance his agenda. He also addressed his time as Acting Chairman of the SEC, during which he reopened the comment period on the pay ratio and conflict minerals rules to gather more information from the public to lessen the burden of the rules.

Piwowar also discussed his efforts to go out into communities to discuss the SEC’s work with those “affected by regulation” and the SEC’s work to “improve the geographical diversity” of venture capital funding and access to capital. In many discussions, the high cost of a company going public was a major point raised by the public, including the costs imposed by Sarbanes-Oxley Section 404b, mandatory arbitration clauses, and the accredited investor definition.

Discussing further the accredited investor definition, Piwowar said there have been discussions and there is certainly “an appetite” to further examine changing the definition. Piwowar mentioned ideas such as including education level and investing through a fiduciary as items that could be examined. Piwowar noted that high risk investments can lead to high returns, and protecting some investors from risk can keep people out of potentially good investment opportunities. Piwowar added that investors don’t hold securities in isolation, but rather as part of a portfolio, and therefore the SEC needs to think differently about risk than they currently do and consider the “diversification benefit.”

Asked about his views on proxy advisory firms, Piwowar said that as a general matter from an information efficiency standpoint, proxy advisory firms make sense as an intermediary to aggregate large amounts of information. Piwowar said, however, that the way the business has grown, conflicts of interest have emerged. Piwowar said the SEC needs to clarify that firms cannot fulfill their fiduciary duty solely by using a proxy advisory firm, and there also needs to be mechanisms to correct errors, and that legislation is needed in this area.

Asked by an audience member about his views on initial coin offerings (ICOs), Piwowar broke down blockchain, cryptocurrencies, and ICOs. Piwowar said they have still not yet determined if cryptocurrencies themselves are in fact securities, and therefore it is still not clear if they fall under the jurisdiction of the SEC. Piwowar stated that the SEC uses the “Howey Test” to determine what falls within their jurisdiction and what falls under current securities laws and regulations, noting that the SEC is closely monitoring this space. Piwowar added that there is a lot of interest in looking at how ICOs can help democratize capital, and he has advocated for opening a public comment period to publicize ideas about how ICOs and cryptocurrencies can be utilized for capital formation.

Piwowar also discussed the access fee pilot, noting it was originally intended to be put out as an NMS plan similar to the consolidated audit trail (CAT), but ultimately was not in order to gather public input. Piwowar said the SEC put out a “solid proposal” and they are looking forward to public comments.

For more information on this event, click here.