Remarks to the SEC Investor Advisory Committee

Chairman Jay Clayton

July 25, 2019

As Prepared for Delivery

Thank you, Anne [Sheehan].  Good morning everyone, and I want to extend a special welcome to our new commissioner, Allison Lee. 

I am interested in today's discussion.  I understand the Committee first will be talking about the SEC approach to regulation in areas where competition may be limited.  Competition is important to the functioning of our capital markets and, over the years, some of the Commission's most effective actions have fostered competition. 

Personally, I often think of the work of the Commission under Chairman Levitt, where the elimination of opacity in our trading markets fostered competition which, in turn, brought down transactions costs for both institutional and Main Street investors and enhanced price discovery and other market functions.[1] 

As another example, many of the key components of our regulation of the trading of equity securities — our National Market System — are based on fostering transparency and competition in order handling and execution.  Recently, we have taken action to further transparency and competition in share trading and are continuing to examine whether more can be done to enhance our NMS system through competition and other means.[2] 

As we have noted often in recent months, laws and regulations have little meaning unless they can be inspected for, enforced and, when a violation is found, a meaningful remedy can be imposed.  We are focused on bringing enforcement actions promptly against those who breach our regulations that protect investors and foster competition in our markets.

Significantly, and in particular for this group, preserving and enhancing full and fair competition, and the concomitant benefits to investors were key considerations in our recent standards of conduct rulemakings.  I firmly believe that as a result of the cross-Divisional work of our staff, retail investors will be better off as transparency, choice and competition in this space will ultimately inure to the benefit of retail investors in terms of lower fees, clearer choices and better services.

Finally, as we look at competition, we must not forget, in fact we must respect the work of our fellow regulators, particularly those who focus on competition.  I am pleased to say that we have a constructive and open dialogue with our friends at the CFTC, the Board of Governors of the Federal Reserve System, the FDIC and the OCC as well as the antitrust division of the Department of Justice on competition in our markets and related topics.

I am pleased that you are continuing to think about our proxy system.  This also is an important topic.  I hope you will keep in mind that the interests of our long-term Main Street investors should be a key priority as we consider any changes to the system. 

Why is it that Main Street investors with direct holdings are voting less often, and are there aspects of our proxy system that discourage Main Street investor participation?  Are they overloaded?  Are they indifferent on some, many or virtually all of the matters submitted to shareholders?  If so, why are they indifferent?   Is the process too cumbersome and, if so, can it be made less so?  Are the matters submitted for a vote important to long term shareholder value?  Who should decide whether they are or could be?  In this regard, are the submission and resubmission thresholds, and other requirements for inclusion of a proposal in the issuer's proxy, appropriately crafted to ensure that the proposing shareholder's interests are aligned with those of a reasonable portion of the company's long-term investors? 

For investors that invest in companies indirectly through mutual funds or ETFs, are these funds' fiduciaries satisfying their duty of care and loyalty with respect to services undertaken on the fund's behalf, including voting?  Can our proxy system be improved so that it is easier to do so? 

I continue to be interested in your thoughts on how we can improve the proxy system in these areas for the benefit of our Main Street investors.  As this discussion continues, we should recognize that the proxy ecosystem of today is far different from 20 years ago.  As just one data point illustrative of change, based on a review of SEC filings the staff tells me the largest companies in 2018 had approximately 50 percent more matters submitted for a shareholder vote than they did in 1998.

When we met in March, we discussed new rules under MiFID II, which became effective in the European Union early last year, and their impact on the production of and payment for research. 

By changing how asset managers are required to pay for research in the E.U., these rules raised significant operational, market practice and compliance issues for broker-dealers and asset managers in the U.S.  Recognizing these difficulties, and the potential adverse impact on investors, in 2017 Commission staff issued three no-action letters to assist market participants in their efforts to comply with potentially conflicting E.U. and U.S. law and regulation across what has become an increasingly global market.   One of these provides temporary no-action assurances to broker-dealers that receive certain payments under MiFID.  This letter is set to expire on July 3, 2020.  We know that any lack of regulatory clarity, including in this case in particular uncertainty about what will happen in July 2020, can create complications and has the potential to negatively impact the market for research services.

Throughout 2019, the staff has been actively engaged with market participants on this issue.   The staff invited the public to provide data and other information, and has met with foreign regulators, industry representatives, and other interested parties to hear their ideas and assess future alternatives. 

I look forward to hearing the discussion today, including suggestions for solutions to alleviate uncertainty for the industry and investors—particularly in light of the EU's ongoing review of the impact of MiFID II on research markets. 

Finally, I am glad that we will hear presentations from Martha Miller and Pam Gibbs, our talented leaders of the Office of the Advocate for Small Business Capital Formation and the Office of Minority and Women Inclusion, respectively.  Martha has already traveled to several parts of the country to learn more about the challenges of raising capital between the coasts and is going to Omaha next month for the SEC's 38th annual Government-Business Forum on Small Business Capital Formation preceded by a meeting of the Small Business Capital Formation Advisory Committee.  Pam has been focusing on diversity and inclusion issues both inside and outside the building.  Alongside our fellow financial regulators, Pam is going to New York in September for the Financial Regulatory Agencies' Diversity and Inclusion Summit with the OCC, Federal Reserve, FDIC, and NCUA. 

I know each of these offices is doing great work and I'm excited for you to get to know them.

Thank you.  

[1] See SEC Biography: Chairman Arthur Levitt, Jan. 23, 2009, available at; Arthur Levitt, Chairman, U.S. Securities and Exchange Commission, Testimony Concerning Preserving and Strengthening the National Market System for Securities in the United States, May 8, 2000, available at

[2] See Disclosure of Order Handling Information, 83 Fed. Reg. 58338 (Nov. 19, 2018), available at; Regulation of NMS Stock Alternative Trading Systems, 83 Fed. Reg. 38768 (Aug. 7, 2018), available at