On June 19, 2018, the SEC published a draft Strategic Plan and requested public comment on the Plan. The Strategic Plan would guide the SEC’s priorities through fiscal year 2022. The Plan reiterates the theme of serving the interests of Main Street investors, but also recognizes the changing technological world with a priority of becoming more innovative, responsive and resilient to market developments and trends. The Plan also broadly focuses on improving SEC staff’s performance using data and analytics.
The Strategic Plan begins with a broad overview about the SEC itself, a topic I go back to and reiterate on occasion, such as HERE. The SEC’s mission has remained unchanged over the years, including to protect investors, maintain fair, orderly and efficient markets, and facilitate capital formation. In addition, according to the Strategic Plan, the SEC:
- Engages and interacts with the investing public directly on a daily basis through a variety of channels, including investor roundtables and education programs and alerts on SEC.gov;
- Oversees approximately $82 trillion in securities trading annually on U.S. equity markets;
- Oversees approximately $40 trillion in the U.S. fixed-income market;
- Selectively reviews the disclosures and financial statements of approximately 4,300 exchange-listed public companies with an aggregate market capitalization of $30 trillion;
- Oversees the activities of over 26,000 registered market participants, including investment advisors, mutual funds, exchange-traded funds, broker-dealers, municipal advisors, and transfer agents, who employ at least 940,000 individuals in the United States;
- Oversees 21 national securities exchanges, 10 credit-rating agencies, 7 active registered clearing agencies, the Public Company Accounting Oversight Board (PCAOB), the Financial Industry Regulatory Authority (FINRA), the Municipal Securities Rulemaking Board (MSRB), the Securities Investor Protection Corporation (SIPC), and the Financial Accounting Standards Board (FASB); and
- Provides critical market services through information technology systems, such as the more than 50 million pages of disclosure documents available on the EDGAR system.
The Strategic Plan describes three main goals: (i) focusing on the long-term interests of Main Street investors; (ii) recognizing significant developments and trends in evolving capital markets and adjusting efforts to ensure the effective allocation of resources; and (iii) elevate the SEC’s performance by enhancing analytical capabilities and human-capital development.
Long-term Interests of Main Street Investors
The American workforce is getting older and living longer. Moreover, many companies no longer manage retirement plans, instead leaving individuals to manage their own 401(k)’s and similar plans. The SEC is concerned that investors do not understand the difference between a stockbroker and an investment advisor or what the responsibilities are for investment advisor.
Furthermore, the SEC is concerned that fewer companies are going public, or are going public later, leaving fewer investment opportunities for Main Street investors. The slow IPO market has been a consistent theme with the SEC and market participants over the past year. See HERE, for example, a summary of Commissioner Piwowar’s speech and HERE for this summary of a U.S. Department of Treasury report.
The SEC identified five initiatives to further their first strategic goal.
- Enhance the SEC’s understanding of how retail and institutional investors access capital markets.
- Enhance the SEC’s outreach, education and consultation efforts, including taking into account the diversity of businesses and investors.
- Pursue enforcement and examination proceedings focused on identifying and addressing misconduct that impacts retail investors. This effort includes uncovering new methods to administer scams and Ponzi schemes and the continued focus on penny stocks.
- Modernize the delivery and content of disclosures so that investors can access readable, usable and timely information. The SEC will continue to examine business and accounting disclosures and make appropriate changes and to upgrade the EDGAR system to make it more usable to retail investors.
- Identify ways to increase the number and type of long-term, cost-effective investment options available to retain investors, including by increasing the number of IPO’s and public companies.
Developments and Trends in Capital Markets; Effective Allocation of Resources
Technology has fundamentally changed the way consumers interact with the securities markets. Investors rely less on traditional personalized advisory services and instead are increasingly seeking advice and pursuing trades using data analytics and executed via algorithms on electronic platforms. This trend is expected to not only continue but to grow and expand with the advent of blockchain technology. Although these changes are beneficial, there are also increased risks, especially related to cybersecurity.
In addition, with the increase in technology there is a global marketplace that interconnects geographical areas and time zones on a 24-hour cycle. Information from one market impacts others, and capital flows across markets, both geographically and in asset type, in amounts that would have been unimaginable only a few decades ago. These changes add challenges to the SEC, especially related to global market participants that may be outside the jurisdiction of the SEC’s authority. The Strategic Plan specifically refers to the recent advent of ICO’s and those that plan offerings to avoid the US federal securities laws. The SEC will need to increase its coordination with other US regulatory bodies and with foreign regulators.
The SEC identified four initiatives to further their second strategic goal of recognizing significant developments and trends in evolving capital markets and adjusting their efforts to ensure the effective allocation of resources:
- Expand market knowledge and oversight capabilities to identify, understand, analyze and respond effectively to market developments, including related to market operations, clearing and settlement, and electronic trading.
- Identify and correct existing SEC rules and approaches that are outdated, including by monitoring new rules which may not be functioning as intended.
- Examine cyber and infrastructure strategies related to risks faced by capital markets and market participants. In addition to focusing on its own direct risks, the SEC must also ensure that market participates are effectively managing their cybersecurity risks.
- Promote SEC preparedness and emergency response capabilities, including through training and testing.
Enhance Analytical Capabilities and Human Capital Development
The SEC’s success, as with all agencies and companies, depends on using resources wisely. The SEC has a goal of improving its own workforce and finding ways to utilize data and technology to improve productivity and efficiency.
The SEC has identified five initiatives to further this third strategic goal:
- Focus on the SEC’s workforce to increase capabilities and promote diversity and equality.
- Expand the use of risk and data analytics, including through developing a data management program that is available on an SEC-wide basis but that provides privacy protections for sensitive information.
- Enhance analytics of market and industry data to prevent, detect and prosecute improper behavior.
- Enhance the SEC’s internal control and risk management capabilities related to cybersecurity.
- Promote collaboration among SEC offices.
Laura Anthony, Esq.
Legal & Compliance, LLC
Corporate, Securities and Going Public Attorneys
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West Palm Beach, FL 33401
Phone: 800-341-2684 – 561-514-0936
Securities attorney Laura Anthony and her experienced legal team provides ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded issuers as well as private companies going public on the NASDAQ, NYSE MKT or over-the-counter market, such as the OTCQB and OTCQX. For nearly two decades Legal & Compliance, LLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions as well as registration statements on Forms S-1, S-8 and S-4; compliance with the reporting requirements of the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; Regulation A/A+ offerings; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers, ; applications to and compliance with the corporate governance requirements of securities exchanges including NASDAQ and NYSE MKT; crowdfunding; corporate; and general contract and business transactions. Moreover, Ms. Anthony and her firm represents both target and acquiring companies in reverse mergers and forward mergers, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. Ms. Anthony’s legal team prepares the necessary documentation and assists in completing the requirements of federal and state securities laws and SROs such as FINRA and DTC for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the OTC Market’s top source for industry news, and the producer and host of LawCast.com, the securities law network. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Las Vegas, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
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