SEC Chairman Schapiro Give Speech on How the SEC Will Implement Financial Reform Legislation

July 27, 2010

SEC Chairman Schapiro gave a speech at the Center for Capital Markets Competitiveness, U.S. Chamber of Commerce in Washington, D.C. on the new Dodd-Frank Act and how the SEC proposes to implement the legislation.  She reviewed the demanding schedule imposed on the SEC by the new law, which requires the SEC to produce dozens of studies and rulemakings.

She noted changes in the comment process on new regulations.  The SEC will invite public comment even before the various rules are proposed and before the official comment periods have begun.  To facilitate this process, the SEC has created a series of e-mail inboxes that can be accessed at

The SEC is also implementing a process governing communications from the public, including the following:

  • SEC staff will try to meet with any interested parties who seek to meet with the SEC. When the number of requests exceeds availability, the staff will seek out parties with varying viewpoints.
  • The staff will ask persons who request meetings to provide, prior to the meeting, an agenda of intended topics for discussion. After the meeting, the agenda will be filed in the public e-mail file.
  • Meeting participants will be encouraged to submit written comments to this same public file, so that all interested parties have the opportunity to review and consider the views expressed.
  • Public hearings will be held on selected topics.

She then discussed regulatory reform.

OTC Derivatives: The SEC will implement rules to exercise oversight to the over-the-counter derivatives market. Working with other regulators and the CFTC in particular, the SEC will be writing rules that address, among other issues, capital and margin requirements; mandatory clearing; the operation of execution facilities and data repositories; business conduct standards for swap dealers; and public transparency for transactional information.

To prevent gaps, regulatory arbitrage and confusion, the CFTC and SEC will engage in joint rulemaking regarding issues including the definition of key terms-like "swap," "security-based swap," and "mixed swap". In addition, the SEC will collaborate closely on the other required rulemakings under the Act.

She noted that under the legislation, primary jurisdiction over swaps is divided between the SEC and CFTC. The SEC has primary jurisdiction over security-based swaps. And the CFTC has primary jurisdiction over other swaps, such as energy swaps, interest rate swaps and swaps based on broad indices, like the S&P 500.

Joint rulemaking regarding key definitions will help to ensure regulatory consistency and comparability.

Fiduciary Duty:  She stated that the Act mandates that the SEC study the effectiveness of existing standards of care for broker-dealers and investment advisers.   In her view, investors who turn to a financial professional often do not realize there's a difference between a broker and an adviser, and that the investor can be treated differently based on who they're getting their investment advice from.  In particular, an investment adviser is held to a "fiduciary standard" meaning they must put the interest of their clients before their own. Whereas a broker-dealer has to observe standards which include an obligation to make recommendations that are "suitable" for their clients.

She noted the quite different regulatory regimes surround the same activity for the two different registration categories. Until now, duty to the customer has flowed from the perspective and legal regimes of the adviser or broker, not from the perspective of the investor the SEC is seeking to protect.

At the completion of this study, the SEC will have the authority to write rules that would create a uniform standard of conduct for professionals who provide personalized investment advice to retail customers. And, the new law requires that this standard be "no less stringent" than the standard applicable to investment advisers.

Hedge Funds:  She next discussed the provisions of the Act that requires advisers to hedge funds and other private funds to register with the SEC.  The Act eliminates the current rule that allows advisers to avoid registration while managing substantial amounts of assets on behalf of a large number of ultimate investors. It also authorizes the SEC to require registered advisers to maintain records of, and file reports regarding, the private funds they advise.

She also spoke about future SEC rules related to corporate issuers, proxy rules and credit rating agencies.

Click here to access the speech.


Exchange-Traded Funds (ETFs), Investment Advisers, Mutual Funds, Speeches & Testimony