SEC Cracks the Whip
With newly proposed rules regarding naked access and executive compensation, the SEC is making significant inroads in shoring up investors’ confidence in the markets and in the Commission itself.
One of the Commission’s recent achievements is newly- proposed rules to prohibit broker-dealers from providing customers with “unfiltered” or “naked” access to an exchange or alternative trading system. The proposed rules, which were unanimously approved last week, would require brokers with market access, including those who sponsor customers’ access to an exchange, to put in place risk management controls and supervisory procedures. The proposed procedures would help prevent erroneous orders, ensure compliance with regulatory requirements, and enforce pre-set credit or capital thresholds.
Another notable recent achievement is the new executive compensation disclosure rules that were adopted last December and will take effect with this year’s proxies.
In the past, the executive compensation disclosure rules contained loopholes permitting public companies to hide information regarding equity grants, which is most important part of the package for many executives. Under the new rules, companies will have to disclose this information to investors in a summary table.
Even under this improved regulatory scheme, however, companies may still be able to minimize the awards they disclose when grants are tied to undisclosed performance goals. The amounts disclosed will reflect only what the company asserts that executives are likely to be paid, with little meaningful way for auditors or investors to assess the reliability of these estimates.
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Cornerstone Research today released its much-anticipated summary of securities class actions filings for 2009. As expected, the data compiled by Cornerstone reflects an overall decline in the number of securities cases filed compared to the bumper year of 2008. However, the summary highlights the fact that financial firms still make up a lion’s share of new filings—underscoring the key role that the these companies played in the financial sector catastrophes of 2007 and 2008.