A Busy Week for the SEC

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This has been a very busy week at the Securities and Exchange Commission.    Major happenings from this week include:    

First, the SEC Commissioner Mary Schapiro testified before the Financial Crisis Inquiry Commission on her views about the causes of the recent financial crisis.   In summary, Schapiro said the crisis resulted from “many interconnected and mutually reinforcing causes.”   These causes include the rise of mortgage securitization, the resulting weaker underwriting standards and excessive reliance on credit ratings by investors.    In addition, Schapiro noted that a general belief that markets were self-correcting and an underestimation of the risk resulted in weaker regulatory standards in some areas.   Schapiro also discussed other contributing causes, such as, the creation of complex financial products that weren’t fully understood, incentives in compensation arrangements that encouraged significant risk, insufficient risk management by companies involved in marketing and purchasing complex financial products.   Nonetheless, Schapiro admitted that the SEC has not performed up to expectations recently and she mapped out the agency’s recent efforts to revitalize itself.

Second, the SEC voted to propose a new rule that would prohibit broker-dealers from providing customers with “naked” access to an exchange or alternative trading system.    The proposed rule would require brokers-dealers to establish risk management controls and supervisory procedures that would help prevent erroneous orders, ensure compliance with regulatory requirements, and enforce pre-set credit or capital thresholds.  The text of the proposing release will soon be posted to the SEC’s Website.

Third, the SEC voted to publish a Concept Release seeking comment on the structure of equity markets, including issues as high-frequency trading, co-locating trading terminals, and markets that don’t publicly display price quotations.    Public comments on the concept release are due 90 days after its publication in the Federal Register.

Fourth, the SEC filed new charges against Bank of America.   The new complaint alleged that the company violated federal proxy rules by failing to disclose extraordinary financial losses at Merrill Lynch prior to a shareholder vote to approve the merger between the two.   The complaint further argues that Bank of America learned prior to the shareholder vote that Merrill Lynch had incurred a net loss of $4.5 billion in October 2008 and estimated billions of dollars of additional losses in November.   The SEC alleges that Bank of America’s failure to disclose the information violated its duty to update shareholders concerning material changes to previously disclosed information, and rendered its prior disclosures materially false and misleading.   

The filing followed a ruling by Judge Jed Rakoff that the SEC’s proposed charges relating to the Merrill losses should be filed separately from an earlier SEC complaint charging Bank of America with misleading investors about billions of dollars in bonuses that were being paid to Merrill executives.   That trial is slated to begin March 1.

Anna Timone (195 Posts)


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