Alert October 13, 2009

SEC Issues Strategic Plan for 2010–2015 for Public Comment

The SEC issued for public comment its strategic plan (the “Plan”) for 2010-2015.  The Plan, which is required under the same 1993 legislation that requires the SEC to provide annual performance plans, identifies goals and performance measures for 70 initiatives relating to oversight, regulation, enforcement, international cooperation and internal SEC matters.  Comments must be submitted by November 16, 2009.

The Plan acknowledges the Treasury’s issuance of recommendations and proposed legislation regarding financial regulatory reform in the areas of custody by registered advisers, regulation of credit rating agencies, money market fund reform and short selling, among others (as discussed in prior Alerts).  The Plan discusses initiatives in a variety of areas, including the following:

Expanded Whistleblower Incentives.  The Plan proposes that the SEC seek legislation to compensate whistleblowers who provide productive tips on violations of the federal securities laws similar to the compensation provided currently for tips relating to insider trading.

Improved Disclosure.  The Plan proposes the SEC consider additional disclosure requirements relating to risk management, executive compensation, director nominations and board governance.  The SEC recently proposed rules that would expand compensation and corporate governance disclosures for operating companies and investment companies (as discussed in the July 14, 2009 Alert).

Proxy Voting and Shareholder-Company Communications.  The Plan proposes that the SEC review proxy voting and shareholder-company communications, including the role of proxy advisory firms in the proxy voting process.

Beneficial Ownership Reporting.  The Plan proposes that the SEC modernize its beneficial ownership reporting requirements to address, among other things, the use of equity swaps and derivatives.

Broker-Dealer and Adviser Regulation.  The Plan proposes that the SEC harmonize broker‑dealer and adviser registration to better protect investors.  Specific steps cited in the Plan include (i) strengthening broker-dealer and investment adviser oversight, particularly in the area of adviser custody, (ii) amending the registration forms for broker-dealers and advisers to elicit information that would be useful in selecting investment professionals and (iii) considering whether to require investment professionals who provide advice to their clients to provide additional disclosure regarding their business practices, conflicts of interest and backgrounds.

Mutual Fund Distribution Fees.  The Plan recommends that the SEC continue its reconsideration of Rule 12b-1 under the Investment Company Act of 1940, which governs a mutual fund’s payment of distribution expenses, and review the factors that a fund’s board considers in approving the payment of those expenses.

OTC Derivatives.  The Plan recommends that the SEC consider how to fill regulatory gaps in the oversight of OTC derivatives, and how to harmonize oversight of economically equivalent OTC derivative instruments with the CFTC.

Money Market Fund Regulation.  The Plan recommends that the SEC consider how money market funds can be better positioned to meet the demands of investors who redeem on a short‑term basis.  The SEC has already proposed changes to its money market fund regulations that reflect in part the Treasury’s recommendations in this area (as discussed in the July 7, 2009 Alert).

ETFs.  The Plan recommends that the SEC consider how to streamline the process for introducing exchange‑traded funds (“ETFs”) to eliminate the delays associated with the current requirement to seek exemptive relief in order to launch an ETF.  The SEC currently has pending a rule proposal that would allow an ETF that meets certain conditions to commence operations without seeking individual exemptive relief (as discussed in the April 1, 2008 Alert). 

NRSRO Oversight.  The Plan recommends that the SEC strengthen its oversight of credit rating agencies registered with it as nationally recognized statistical rating organizations (“NRSROs”) to increase the transparency of ratings methodologies and performance, and improve disclosure of conflicts of interest.  The SEC has recently engaged in additional rulemaking relating to its oversight of NRSROs (as discussed in the September 22, 2009 Alert).

Point of Sale Disclosures.  The Plan recommends that the SEC consider whether broker-dealers selling mutual funds, variable annuities and 529 products should provide point of sale and internet disclosure regarding key product features and matters relating to their compensation and conflicts of interest.  The SEC has outstanding a proposal from 2004 regarding point of sale disclosures by broker‑dealers (as discussed in the February 3, 2004 and March 8, 2005 Alerts).