James Cox on the future of the SEC

WASHINGTON >> President Trump has named Jay Clayton, a Wall Street attorney who worked on mergers and IPOs, to head the Securities and Exchange Commission. Last week Trump ordered a review of the 2010 Dodd-Frank law, which reshaped regulation of the banking industry after the financial crisis. He called the law a “disaster.”

How are the SEC’s focus and activity likely to change in an administration that tilts toward easing regulation? We asked James Cox, a professor at Duke University School of Law who’s an expert on securities law and a close SEC-watcher. The Q&A has been edited for clarity and length.

Q

: How do you think the SEC might shift its focus in the Trump administration under Jay Clayton?

A

: I think the SEC’s at a good point in time to respond to developments. It’s time for consolidation of not just rulemaking but its overall mission, because it’s been terrifically preoccupied with rulemaking under the Dodd-Frank Act and was consumed with what to do about financial markets in light of the crisis.

Now those rules and regulations are behind it. Here’s something getting back to the SEC’s more bread-and-butter concerns: Before the Democrats gave up the SEC chairmanship, the agency circulated a concept release about how it could rethink disclosure requirements for public compa-

nies. They’ve gotten a lot of feedback on that, and so their challenge now is to address it.

Q

: Could you explain the disclosure issue?

A

: There’s a lot of pressure on the SEC to have scaled disclosure so that the really big companies that are more complex will have more disclosure and the smaller companies for which the cost of disclosure is more significant, will have less disclosure. So what is more, what is less and where do you draw that line? These

are things that are waiting for the new SEC chairman to set the tone and go forward.

I say this as somebody who’s very favorably inclined toward mandatory disclosure and regulation of capital markets. But even I believe there’s been regulatory bloat that’s occurred. It’s possible that we can do more with less. The idea is to get down to the matters that investors are truly worried and thinking about.

Q

: How about the SEC’s enforcement efforts? How might the focus change?

A

: I wouldn’t be surprised to see a substantial augmentation of the resources and enforcement

being devoted to money managers. Nobody, whether you’re a Republican or a Democrat, tolerates fraud being perpetrated against Main Street.

We’ve seen a step-up (in recent years at the SEC) of action against money managers for some really despicable conduct. So I can see how hanging up scalps there may take place.

I think you’ll probably see a step-back in enforcement actions against sloppy management practices. That is, not fraud but instances in which company record-keeping or protocols for market firms’ executing trades weren’t proper. Things that are really regulatory offenses. I think those actions will decline.