Banking Law Prof Blog

SEC as a "Prudential Regulator"?

SEC Commissioner Annette Nazareth suggests that the SEC should move toward becoming a "prudential regulator" -- and then explains what she means by that.

Here's an excerpt from her March 26, 2007, speech in Phoenix, Arizona, before the Securities Industry and Financial Markets Association (SIFMA) Compliance and Legal Conference:

"We often hear the assertion that the SEC and other functional regulators should adopt a more principles-based regulatory approach as opposed to our current rules-based approach. I believe this is a false dichotomy. Good rules are derived from over-arching principles, but the specificity of the rules can provide useful guidance to the marketplace. The focus, it seems to me, should be on prudential regulation. Some use the term prudential regulation to mean less regulation or a laissez faire approach to oversight. That is not at all what I mean. Prudential regulation to me implies having a clear set of standards with a more flexible implementation approach for meeting those standards. It means permitting regulated entities to meet their obligations in a more customized, as opposed to "one-size-fits-all," manner. It means more efficient regulation, not less effective regulation."

Link:  http://www.sec.gov/news/speech/2007/spch032607aln.htm

(ag) March 27, 2007, in Securities Law

"Operation Spamalot"

SEC Chairman Chris Cox announced last week that the SEC has suspended trading in the securities of 35 companies whose stock has been "promiscuously promoted" in recent e-mail spam campaigns.

You've probably received these "hot stock tips" by e-mail.  The SEC has advised the public to delete these e-mail messages immediately!  This spam is a scam!  But apparently, enough people are deceived that spam campaigns often do result in a short-lived stock price run-up -- until share prices drop back, costing some investors the price of gullibility.

Here's how Chairman Cox describes the problem:  "It is estimated that 100 million spams hyping stocks and other securities are sent each week. That's 5.2 billion spam emails a year. The SEC has estimated that, if we value investors’ time at $10 hour, just deleting all this spam from Americans’ in-boxes costs our economy $50 million each year. These spam emails carry messages like, 'This Stock's Ready to Explode,' 'Ride the Bull,' and 'Fast Money.'"

Link: http://www.sec.gov/news/speech/2007/spch030807cc-b.htm

(ag) March 15, 2007, in Securities Law

SEC Heads-Up for Bank Trust Departments

As of Jan. 24, 2007, bank fiduciaries must follow new SEC rules to obtain a safe harbor with respect to using client commissions to obtain securities brokerage and research services.  Failure to follow the SEC's current guidance can result in violations of fiduciary duty as well as securities law violations.

OCC Bulletin 2007-7 (Feb. 5, 2007) provides a clear summary of the SEC's Soft Dollar Guidance on Commission Payments by Fiduciaries:  http://www.occ.gov/ftp/bulletin/2007-7.html

(ag) Feb. 7, 2007, in Securities Law

Full Text of SEC's Rule on Internet Availability of Proxy Materials

Today, the SEC posted the full text of its new rule on Internet Availability of Proxy Materials.  Of course, as the rule provides, Notices of Internet Availability of Proxy Materials may not be sent to shareholders before July 1, 2007. 

This rule has the potential to increase shareholder activism by reducing the cost of engaging in proxy solicitations.  Clearly, issuers will also benefit from reduced costs.  Let's see what happens.

Link:  http://www.sec.gov/rules/final/2007/34-55146.pdf

Concurrently, the SEC is seeking comments on a Proposed Rule that would require issuers and other soliciting persons to post the proxy materials on a website and to give shareholders a choice about how they wish to receive proxy materials.

Link:  http://www.sec.gov/rules/proposed/2007/34-55147.pdf

(ag) Jan. 22, 2007, in Securities Law/Corporate Governance

Making Risk/Return Statements for Mutual Funds More Useful - Hats Off to ICI

SEC Chairman Christopher Cox commended the Investment Company Institute ("ICI") on developing and releasing for public review a new draft taxonomy for risk/return statements for mutual fund prospectuses.  The risk/return statements contain information important to an investment decision, including investment objectives and strategies, costs, risks, and historical performance information.

So, what's taxonomy?  Here's the Whatis.com definition:  "classification according to a pre-determined system, with the resulting catalog used to provide a conceptual framework for discussion, analysis, or information retrieval. In theory, the development of a good taxonomy takes into account the importance of separating elements of a group (taxon) into subgroups (taxa) that are mutually exclusive, unambiguous, and taken together, include all possibilities. In practice, a good taxonomy should be simple, easy to remember, and easy to use."

In context, it's a classification system for retrieving data online.  We hope it's truly easy to use!

Link:  http://www.sec.gov/news/press/2007/2007-2.htm

(ag) Jan. 8, 2007, in Securities Law

What's the Scoop on the NASD/NYSE Proposal to Combine?

You can't pick up the Wall Street Journal on any given day without seeing at least one story on the Proposal by the National Association of Securities Dealers (NASD) and the New York Stock Exchange (NYSE) to combine to form a new Self Regulatory Organization (SRO) for the U.S. securities industry.  Check out the SEC website for full information.  Here's a summary of the deal:

On November 28, 2006, NASD and announced a plan to consolidate their member regulation operations into a new self-regulatory organization that will be the single regulator for all securities firms doing business with the public in the United States. The plan has received board approval by NASD, NYSE Regulation and NYSE Group. Link:  http://www.nasd.com/RegulatoryConsolidation/index.htm (ag) Dec. 19, 2006, in Securities Law

On Monday, December 18, 2006, all NASD member firms received by mail a comprehensive information package, including a proxy statement and official proxy card to vote on By-Law amendments related to the proposed consolidation of NASD and NYSE member regulation. The voting period on the proposed plan has commenced and will end on Friday, January 19, 2007.

Bank "Broker" Exceptions - When Can a Bank Engage in GLBA Securities Activities without Registering with SEC?

On Dec. 18, 2006, the SEC announced the promulgation of Joint Agency "Bank Broker Rules" pursuant to the Gramm-Leach-Bliley Act.  These regulations, jointly adopted by SEC and the Federal Reserve Board, after consultation with FDIC, OCC and OTS, outline the conditions under which banks can conduct certain securities activities without the requirement of SEC registration as brokers.  These rules -- a long time in the making -- balance the real world of bank securities activities and the need to protect investors.

Link:  http://www.sec.gov/news/press/2006/2006-211.htm

(ag) Dec. 19, 2006, in Securities Law

Proxy Materials & the Internet

Effective July 1, 2007, SEC Rules will allow companies to furnish proxy materials to shareholders through a “notice and access” model. Under this elective model, a company must post its proxy materials on an Internet Web site and send a Notice of Internet Availability of Proxy Materials to shareholders at least 40 days before the meeting date.  This amendment to the Proxy Rules was adopted by the SEC at its Dec. 13, 2006 meeting.  Of course, this process should result in a significant cost saving in producing proxy materials -- both for companies and for shareholders that want to conduct proxy solicitations.  Shareholders that want paper copies can still request and receive them.

At the same time, the SEC adopted a Proposal to make this "notice and access" model mandatory for all solicitations not related to a business combination transaction.  The SEC seeks public comment on this Proposal for 60 days after Federal Register Publication.

Link to SEC Release 2006-209:  http://www.sec.gov/news/press/2006/2006-209.htm

(ag) in Securities Law/Corporate Governance