New Wall Street Cop Won’t “Slash & Burn”

Incoming SEC Chairman Expected to Ease Rules, Enforcement

By Eve Tahmincioglu

The man chosen by President Donald J. Trump to lead the nation’s agency that polices Wall Street is expected to be less of an enforcer of financial regulations than his predecessor, and will likely focus on ways to prop up the decline in the number of publicly traded companies.

But few expect Jay Clayton, the new chairman of the Securities and Exchange Commission, who brings with him a background as a deal-making attorney, to set financial market rules ablaze.

“I don’t see him slashing and burning regulations,” says N. Peter Rasmussen, a senior legal editor for Bloomberg BNA. There are definitely changes ahead, he adds, “but Clayton is not an ideologue. I don’t see him cutting regulations just to cut.”

The key move to watch, he continues, is who Clayton appoints at the SEC’s lead enforcer.

Under previous SEC Chairman Mary Jo White, the agency’s Enforcer Director was Andrew Ceresney. “He had a prosecutorial background,” Rasmussen points out, and that lead to a stronger focus on enforcement.

Indeed, a new report by NYU Pollack Center for Law & Business, in collaboration with Cornerstone Research, found since April 2013 when White was sworn in, SEC enforcement actions have jumped.

According to the report: The increase in SEC actions against public company–related defendants from FY 2013 through FY 2016 was 130% as compared to a mere 61% increase in all independent or stand-alone enforcement actions.

Actions for the first half of 2017 were still at elevated levels, but it’s unclear how things will play out now under Clayton.

“You usually don’t see changes right away, even when there are changes in leadership,” explains Anat Carmy-Wiechman, associate director of the NYU Pollack Center. “It takes some time.”

When she and her colleagues looked at changes after White came on board, “We saw the number of cases went up gradually.”

Some expect him to shift the agency’s priorities. Denver Edwards, a principal at the law firm of Bressler, Amery & Ross and a former SEC attorney, says Clayton’s leadership will be “more focus on regulatory and finance issues, rather than enforcement issues.”

Edwards maps out Clayton’s objections for the SEC like this:

·      Capital formation (IPOs),

·      Efficient markets (regulatory rollback),

·      And investor protection (enforcement). 

“These goals are consistent with the SEC’s mission,” he says. “Strong corporate governance (system of rules, practices and processes that balances the interests of stakeholders) and board leadership will be necessary to achieve them.”

Despite the expected move away from enforcement, Clayton spoke about being tough on bad players.

In a statement he read to Congress during his confirmation hearings, he said:

“I am 100% committed to rooting out any fraud and shady practices in our financial system.”

But he added:

“In recent years, our markets have faced growing competition from abroad. U.S.-listed IPOs by non-U.S. companies have slowed dramatically. More significantly, it is clear that our public capital markets are less attractive to businesses than in the past. As a result, investment opportunities for Main Street investors are more limited. Here, I see meaningful room for improvement.”

The number of publicly traded companies has been on the decline, with more and more companies opting to stay private or delay initial public offerings, or IPOs.

Research from Fortune magazine found:

  • 65% decline in the number of U.S. IPOs from a 2014 high of 363. The flow of initial public offerings slowed considerably in 2016, hitting just 128—the lowest number since the financial crisis—with few signs of picking back up.
  • 37% decline in the number of U.S.-listed companies since its 1997 high. With more companies opting for private fundraising over the hassle of public markets, the number of public companies has fallen to 5,734, about on par with the early ’80s.

We’ll see how Clayton plans to improve the public capital markets, but it may not be all about curtailing regulations. In an interview with The Wall Street Journal this weekend, SEC’s new director of the Corporations Finance division Bill Hinman said he didn’t think the decline in public companies could be blamed solely on regulations.

While time will tell what actually plays out on the ground, Edwards predicts, Clayton “will be careful to ensure that companies follow governance best practices while advocating more risk-taking.”

Below is a video of Sen. Elizabeth Warren grilling Clayton during his nomination hearing.