SEC Commissioner Aguilar Speaks on Issues Confronting the Mutual Fund Industry

April 2, 2014

SEC Commissioner Luis Aguilar spoke at a Mutual Funds Directors Forum event in Washington, D.C., about mutual fund industry issues. He began by reviewing the history of the SEC’s regulation of mutual funds. During that discussion, he spoke about recent developments at the SEC including several enforcement actions involving mutual funds.

Next, he spoke about the activities of the Financial Stability Oversight Council (FSOC) and its research arm, the Treasury Department’s Office of Financial Research (OFR), including their  a study of the asset management industry.  He highlighted three criticisms of the report provided by certain commenters:

  • the report has significant factual and analytical defects that rendered it unreliable as a basis for making policy determinations;
  • the report failed to draw a clear line between asset managers and the funds they manage; and
  • the study mischaracterizes the asset management industry and the risks asset managers pose, making  speculative assertions with little or no empirical evidence.

He concluded this part of the speech by noting that the SEC has very little control or input over the content and output of projects undertaken by FSOC and OFR, as well as the behavior, inputs, and conclusions supplied by others from the SEC working with FSOC and OFR.

He next spoke about mutual funds operating in the current market structure. He stated that the equity markets operate under a market-taker pricing structure.  Under the maker-taker model, buyers and sellers who submit standing limit orders or quotes are paid rebates, and those who “take” that liquidity by submitting immediately executable marketable orders are charged a fee by the trading venues to which those orders are routed. One concern raised by some market participants and investors is that the maker-taker model may present a conflict of interest between brokers and their customers because broker-dealers are incentivized to send customer orders to the venue that pays the best maker-taker rebate, and not necessarily the venue that provides best execution.

He concluded his speech by discussing cybersecurity threats to the mutual fund industry.

Please click here to access his speech.


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Mutual Funds