Chairman Cox Opens SEC Speaks Conference

The always informative Practising Law Institute's "SEC Speaks" conference was recently held in Washington, DC. In his keynote address, SEC Chairman Christopher Cox reviewed the initiatives the SEC has undertaken in his 80 weeks as chairman, including the most comprehensive overhaul of the executive compensation rules in a decade. That initiative could not have been more timely, he said, given that the stock option backdating scandal was just coming to light.

Mr. Cox said that the SEC's investigations into backdating practices illustrate the value of interactive data. Once the SEC began receiving the Form 4 insider reporting transaction forms in an interactive data format, the information became much easier to analyze. He added that the SEC began to tag the data from the archival Forms 4 using the XML format. The SEC also adopted rules that accelerated the filing of the forms to within two days of the option grants. The result of these initiatives was the discovery of billions of dollars of backdated stock option awards.

The chairman also reviewed the Commission's enforcement process. He praised the SEC's Wells process as one of the most striking models of fairness that exists in the federal system. It provides an opportunity to present a counter-argument to a potential enforcement action.
In other developments at the seminar, the Division of Market Regulation expects to recommend the adoption of final rules this spring on proposals to prevent short sales during the period before pricing and then purchasing the security in the offering, and amendments to Regulation SHO. In addition, the staff expects to update its responses to frequently asked questions about Regulation NMS in the next couple of weeks. The staff also hopes to move quickly on its bank broker-dealer rules, which could be finalized by summer.

Commissioner Paul Atkins spoke about court decisions overturning the SEC's mutual fund governance rules and its hedge fund adviser registration rules, and Congressional action to prompt the SEC to adopt rules for credit rating agencies and bank broker-dealer activities. Mr. Atkins observed that Chairman Cox has taken the two judicial reprimands as an opportunity to conduct a top-to-bottom review of the SEC's process for assessing the economic impact of its rulemaking.