SEC Is Steering More Trials to Judges It Appoints

The Securities and Exchange Commission is increasingly steering cases to hearings in front of the agency’s appointed administrative judges, who found in its favor in every verdict for the 12 months through September, rather than taking them to federal court. The winning streak comes amid a marked shift at the agency toward trying cases that are more complex before its administrative law judges. Historically, the SEC had more often turned to these judges for relatively straightforward legal actions, such as barring stockbrokers who had been convicted of criminal fraud. Thanks in part to enhanced powers granted in the 2010 Dodd-Frank financial-reform bill, the SEC lately has been using the administrative judges for complicated cases, including several involving insider trading. More in the Wall Street Journal [...]

Do we really need more deliberation on the fiduciary standard, commissioner?

In a recent speech before the National Association of Plan Advisors, SEC Commissioner Michael Piwowar suggested the commission needs to take “a measured and deliberative approach” to the question of whether brokers who offer personalized investment advice to average mom-and-pop investors should have to act in the best interests of those investors. Since the Securities and Exchange Commission has been actively deliberating the “standard of care” for nearly a decade now, I think we can check that box. Moreover, given the questionable arguments Mr. Piwowar puts forward against rule making, it is hard to believe further “deliberation” would make any difference to his views. Mr. Piwowar started his speech with what has become a signature line: “As demonstrated by the endurance and passion of arguments on all sides, this question is not just really hard to answer. It is really, really, really hard — with three “reallys.’” However, the broker-dealer trade associations that once adamantly opposed a best-interests standard have now embraced it. The Securities Industry and Financial Markets Association, a trade group of securities firms, for example, has publicly declared its support for SEC rule making to impose a uniform fiduciary standard on broker-dealers and investment advisers. Other major stakeholder groups representing investors, broker-dealers, investment advisers, financial planners and state securities regulators have all agreed that Section 913 of the Dodd-Frank Act provides an appropriate framework for commission rule making. It is true that important differences remain over details of how a regulation should be drafted, but when is that not the case? More in Investment News [...]

How High-Frequency Trading Firms Can Rig the Game

“Let’s make sure we don’t kill the golden goose,” a manager warned cohorts at New York high-frequency trading firm Athena Capital Research, which had developed a rapid-fire, complex algorithm code-named “Gravy” to fraudulently manipulate the closing prices of tens of thousands of big-name U.S. stocks, such as eBay (EBAY) and Northern Trust Corp. (NTRS). The internal email followed an automated alert received by the multimillion-dollar fund from the Nasdaq stock market informing it that “suspicious orders or quotes that are potentially intended to manipulate the opening or closing price will be reported immediately.” More on Newsweek [...]

SEC approves securities arbitration fraud intervention rule

SEC approves securities arbitration fraud intervention rule. The U.S. Securities and Exchange Commission has approved a rule that will let securities arbitrators immediately report frauds that may threaten the investing public if they learn about them in the middle of a case. The agency’s approval, published in the Federal Register on Wednesday, ends years of controversy about the proposal, which was sparked by multibillion-dollar Ponzi schemes orchestrated by Bernard Madoff and R. Allen Stanford. More on Reuters [...]

License to invest

Last week, the Securities and Exchange Commission’s (SEC) Investor Advisory Committee — on which I currently serve — recommended, over my objection, that the SEC change the way it assesses who qualifies as an “accredited investor.” Although sensibly challenging the existing approach to accreditation, the committee’s approach was too conservative. Instead, the committee should have called for a more fundamental reconsideration of whether existing investment restrictions are consistent with investor protection. Under existing law, companies can raise funds through public and private offerings. A public offering involves registration of the offering with the SEC and compliance with an ever-expanding list of regulatory requirements. Anyone can buy shares in a public offering. A private offering, by contrast, is subject to a much shorter regulatory checklist, but — with limited exceptions — only accredited investors are able to buy shares. More on The Hill [...]

Rep. Garrett to FINRA: Hold Off on CARDS

Rep. Scott Garrett, R-N.J., chairman of the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, told the Financial Industry Regulatory Authority on Tuesday to hold off on its “costly and burdensome” plan to collect broker-dealer account data through its Comprehensive Automated Risk Data System (CARDS). “After a preliminary reading of the proposed rule, I remain far from convinced that this new, costly and burdensome proposal is needed,” Garrett said in a statement. More on Think Advisor [...]

U.S. SEC’s Piwowar takes a swing at ‘broken windows’ enforcement policy

A top official at the U.S. Securities and Exchange Commission on Tuesday criticized the “broken windows” enforcement strategy being deployed by the agency, saying it hinders the agency’s ability to set priorities and have robust, healthy markets. In a speech at the annual Securities Enforcement Forum, SEC Republican Commissioner Mike Piwowar took aim at the approach that SEC Chair Mary Jo White has used, which entails pursuing cases against both big and small violations. “A broken windows approach to enforcement may not achieve the desired result,” said Piwowar. “If every rule is a priority, then no rule is a priority.” More on Reuters [...]

SEC Making ‘Real Progress’ on Accredited Investor Definition Changes: White

The SEC’s Investor Advisory Committee on Thursday recommended five updates to the Commission’s decades-old accredited investor definition, including a provision to allow investors to qualify based on their “financial sophistication” and not just their net worth. Barbara Roper, who heads the advisory committee’s Investor as Purchaser Subcommittee, said during the Committee’s meeting held at SEC headquarters in Washington that the recommendations include “several significant changes” from those discussed at the Investor Advisory Committee’s July 10 meeting. More on Think Advisor [...]

Wall St. watchdog to shut penny-stock market, boost OTC oversight

Wall Street’s industry-funded watchdog plans to shutter its antiquated, quarter-century old trading system for penny stocks, while increasing its oversight of over-the-counter (OTC) securities traded elsewhere, according to a regulatory filing. In the early 1990s, if retail investors or other market participants wanted to see a price quote for an unlisted stock, the Financial Industry Regulatory Authority’s OTC Bulletin Board (OTCBB) system, which was started for just that purpose, was the place to look. But over the years private firms have enabled electronic trading in OTC stocks, and the OTCBB, which brokers still have to pick up a phone to trade through, has seen its market share slide to well under 1 percent. More on Reuters [...]

SEC Delays Action on Wall Street Safeguards

WASHINGTON—Regulators have delayed action on a proposal to require trading firms to put in place new testing and maintenance checks aimed at preventing market mishaps such as Nasdaq Stock Market’s fumbling of the Facebook Inc. public offering. The holdup comes amid internal conflicts over the scope of the rule within the Securities and Exchange Commission, with Democratic commissioners Kara Stein and Luis Aguilar pushing to extend the rule to more trading activity, among other changes, according to people familiar with the decision. Expanding the rule would provide further protections for investors against technology breakdowns, they argue, but some on Wall Street worry it will impose added costs on trading firms and investors. More in the Wall Street Journal [...]