SEC Chair Jay Clayton Encourages IAC To Foster More Competition

SEC Chair Jay Clayton encouraged the Investor Advisory Committee ("IAC") to consider approaches to regulation that foster competition in areas where competition may be limited.

In remarks to the SEC Investor Advisory Committee, Mr. Clayton discussed the importance of "transparency" and "competition" to facilitate order handling and execution on the National Market System. He underscored the importance of the proxy system and of prioritizing the interests of the SEC's long-term Main Street investors. Mr. Clayton questioned (i) why Main Street investors seldom vote even when they have direct holdings and (ii) whether there are aspects of the proxy system that dissuade Main Street investors from participating. Mr. Clayton challenged the Committee to consider ways the proxy system can be improved for investors so that the fiduciaries of exchange-traded funds can satisfy the duty of care and loyalty with regard to voting.

Mr. Clayton also described progress made since the European Union passed the Markets in Financial Instruments Directive ("MiFID II") in early 2018. Mr. Clayton said that new EU regulations on how asset managers are required to pay for research resulted in significant market practice and compliance issues for U.S.-based broker-dealers. To help alleviate these issues, Mr. Clayton said, the 2017 Commission staff granted three no-action letters easing the burden for market participants trying to comply with "potentially conflicting" EU and U.S. laws and regulations.

Commentary

Encouraging retail investors to spend time educating themselves to vote in proxy contests is not a productive exercise for regulators. It would make more sense for the SEC to focus on the voting patterns and incentives of institutions, such as registered investment companies and pension plans, that hold stocks for the benefit of retail investors. Retail investors who are studying up on how to vote in a proxy contest may want to consider spending more time playing video games, watching television or going for walks in the woods.

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