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SEC Commissioner Stein Discusses Dodd-Frank and Other Challenges Facing the SEC

New SEC Commissioner Kara Stein recently gave a speech to the American Bar Association’s Federal Regulation of Securities Committee in which she shared her thoughts on “how each of us can be doing the best we can for our markets and the millions of investors and business who rely on them each and every day.”

She emphasized the importance of completing the Commission’s rulemaking responsibilities under Dodd-Frank and the JOBS Act.  She acknowledged the “Herculean task” of finalizing the Volcker Rule, noting that the five agencies involved are required to adopt rules that “satisfies its own mission and obligations.”  She stated that “the rule that we are evaluating now is not the rule that I would have written,” but expressed hope that the final rule proposal “will be strong enough, and faithful enough to Congress’s direction, that I will be able to support it.”

Commissioner Stein also discussed the challenges presented by the SEC’s expansion of private offering exemptions to include offerings made using mass media.  She noted that hedge funds may use different methods to calculate performance, making it difficult for investors to compare investments and putting registered funds, and their strict performance standards, at a disadvantage.

In addition to the Commission’s required rulemakings, Commissioner Stein discussed other challenges facing the Commission including market microstructure.  Given the potential effect on investor confidence, she cited the importance of designing a system that addresses issues “before they severely undermine the market’s stability or integrity.”  She advocated “mandating that firms have basic protections in place,” including requiring firms to test their computer systems and oversee their activities so they can stop trading in real time.  She also encouraged a closer look at the race for technological advantages in the markets, including whether it poses threats to our markets and the costs and benefits to investors and businesses.  Commissioner Stein also promoted a closer look at “proprietary data feeds, the role of so-called dark pools, the role of exchanges, and the role of differentiated trader types” in order to determine the value of having multiple outlets to execute a trade, and the impact of these alternatives on the overall market. 
She also mentioned her “strong interest in financial reporting,” encouraging comments on the PCAOB’s recently proposed auditor transparency rule.  She stated that “[t]he proposed transparency rule could help those auditors who are providing high quality service take credit for their excellence, and could also help identify those who don’t adequately fulfill their professional obligations.”

Commissioner Stein outlined her views of the Commission’s enforcement efforts, praising the work of the staff of the Division of Enforcement.  She applauded the Commission’s use of “all the tools in its toolbox” in the enforcement area explaining “[t]he Commission is incentivizing cooperation in new ways to lead to better intelligence, better cases, and better investor protection.”  She expressed support for direct accountability for top executives.  In addition to accountability for top executives, she stated “we need to use our enforcement powers to influence gatekeepers.  That means we need to be bringing tough cases against those who could have prevented misconduct,” including CCOs, CFOs, accountants, and lawyers.