Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Friday, February 5, 2010

Schapiro Outlines SEC's Initiatives for Retail Investors

In a major speech today, the SEC's Chair Schapiro reviews the agency's accomplishments of the past year and looks ahead to future actions.  Among those she identified of particular interest to retail investors are:

Point of Sale: Retail investors should be provided clear, simple, meaningful disclosure at the time they are making an investment decision — disclosure that includes comprehensible and comparable information about the securities products and services being offered — as well as the compensation and conflicts of the person making the recommendation....

In the past, there has been significant industry resistance to this seemingly level-headed concept. I am hopeful, however, that a focus on the needs of retail investors will prevail.

12(b)-1 Fees: Directly related to the concept of point of sale, is the issue of 12b-1 fees. These are fees that are automatically deducted from mutual funds to compensate securities professionals for sales and services.

The problem is that investors may have no idea these fees are being deducted, what services they are paying for, or who they are ultimately compensating. That's why I believe we need to critically rethink how 12b-1 fees are used and whether they continue to be appropriate....

So, I have asked the staff for a recommendation on 12b-1 fees for Commission consideration in 2010.

Proxy Access: And, I am hopeful that we will adopt rules to facilitate the effective exercise of the rights of shareholders to nominate directors to the Boards of the companies they own. This so-called proxy access rule is designed to increase shareholders' ability to hold boards accountable.

Money Market Funds: More recently, we adopted rules that will make money market funds more resilient by strengthening their credit quality, liquidity and maturity standards. ...Importantly, our money market fund reforms are not yet done. Looking ahead, we will be considering yet more measures to address money market fund risk, especially the risk of a run on money market funds.

In particular, I have directed our staff to examine the merits of a floating, mark-to-market NAV for money market funds, rather than the stable $1 price.

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