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SEC Commissioner Speaks on Trans-Atlantic Effort to Strengthen Market Oversight

Good evening, and thank you, Didier [Cahen, Secretary General, Eurofi], for your kind introduction and for your leadership in organizing this conference.[1]

It is a pleasure to join you in this beautiful part of the world, a UNESCO World Heritage Site.

This culturally and linguistically diverse region has special meaning for me. I grew up in a place called San Diego, in a Spanish-speaking home, with parents who immigrated to the United States from Mexico.

My mother and grandmother, both devout Catholics, once took me to another pilgrimage site near their hometown in Mexico. This site, originally given the name Santiago de Talpa in the year 1599, is located near a city named Compostela, in a region once known as Nueva Galicia.

So it is particularly special to be here in light of this personal connection and of the deep bonds and shared history and traditions between Galicia and Spain and the Americas.

And as an avid football fan, my congratulations to Spain’s courageous Women’s National Team on winning the World Cup. What a historic and exciting achievement!

It is an exciting time for us in the U.S. — admittedly in a different way than winning a world title.

Under the leadership of SEC Chair Gary Gensler, we are advancing a series of reforms to strengthen oversight of our financial markets.

Our reforms span the range of our mission — promoting fair, orderly and efficient markets, investor protection, and capital formation.

Having served as an SEC Commissioner for over a year, it’s been rewarding to do my part in advancing this robust agenda. Looking back at what we have achieved so far, our agenda has been targeted, our approaches well-intentioned, and our execution well-informed by all interested parties.

There’s much debate in our country about the scope of this agenda. Some argue that it overreaches; others that it’s not enough.

But what matters most is whether our agenda is addressing the challenges of our time head on, and whether it is making it possible for us to fulfill our mission more effectively.

By all measures, it is.

Whether on digital finance, cybersecurity, transparency and market integrity, or decision-useful disclosures, our reforms will make our markets more resilient and ensure that investors — large andsmall — are protected.

Robust market oversight and updated rules that meet the needs of our times are necessary elements of strong markets.

On average, U.S. equity markets, 40 percent of the world’s share, trade over half a trillion dollars per day. The current regulatory framework for U.S. equities has yielded deep, efficient, fair, and highly innovative public markets. Investors in these markets enjoy narrow spreads, low transaction costs, and fast execution speeds.

Last December, the Commission proposed reforms to improve transparency and increase competition in our equities markets.

Our reforms are designed to shed light on access fees and best execution practices — including by updating a nearly quarter-century old rule — and to promote competition between on-exchange and off-exchange trading.

These reforms also offer retail investors more competitive pricing, increase competition among trading venues, and provide more decision-useful information for all market participants.

As part of our general efforts to stay on top of market change, we have proposed a rule that addresses directly the conflicts inherent in technology-driven interactions with investors. Increased digitization of investment information, decisions, and interactions raises novel investor protection issues.

A recent study found that social media was a common source of information for new investors.

Our proposal on digital engagement practices would strengthen investor protections by preventing firms from misusing technology in a way that steers investors towards decisions that benefit the firm at the expense of the investor.

The Commission has also proposed a rule designed to improve transparency and lower systemic risk in the $23 trillion U.S. Treasury market.

In the U.S., the Treasury market plays a vital role in public finance and in monetary policy. Worldwide, market participants depend on the Treasury market to manage risk, post-collateral, set benchmarks for borrowing and lending, and for many other purposes.

By increasing the number of transactions subject to central clearing, our proposal is designed to make this market more resilient.

In the public company space, we have completed long-overdue rules mandated under the Dodd-Frank Act that address accountability of corporate executives.

We adopted a rule requiring public companies to claw back wrongly awarded executive compensation when a company restates its financials due to material errors.

The benefit of this reform is that it reduces the risk of costly litigation and preserves funds that from a shareholder’s perspective could be put to better, more productive uses.

In this same vein, we completed a rule on pay for performance, making it easier for shareholders to assess the relationship between executive compensation and a company’s performance.

This initiative addresses a key problem seen in the 2008 financial crisis — the stark misalignment of incentives that led executives to take excessive risks.

As all of you here know so well, the actions of executives can have a significant impact on the performance of a company. Conflicts of interest between their own incentives and their duty to maximize shareholder value can harm investors.

To address this, we took steps to strengthen investor protections around insider trading.

Another important development we have responded to is increased investor demand for more standardized ESG disclosures. This is particularly relevant for investment and voting decisions by investors with a longer-term investment horizon.

The SEC is in the midst of an effort to enhance and increase comparability of climate risk-related disclosures. Voluntary disclosures are fragmented, inconsistent, and lack comparability across the market. This is why investors with $130 trillion in assets under management have advocated for standardized corporate disclosures of climate risks.

But ESG is more than just climate.

We proposed reforms that would require funds and advisers to stand by their ESG claims, and accurately communicate to investors how they are incorporating ESG into their investment decisions.

To provide greater transparency around a type of risk that has increased significantly over the past decade due in part to technological developments, we recently finalized a rule that will require companies to disclose their material cybersecurity incidents, as well as information regarding their cyber-related risk management, strategy, and governance.

Prior to adopting this rule, public companies were not required to explicitly disclose cybersecurity risks, governance, or incident reporting.

Another key investor protection reform we advanced addresses problematic practices of advisers to private funds.

These practices have led to material, negative effects on investors.

Our recently adopted rule will provide all investors — not just the well-heeled — access to preferential terms. This will increase accountability and strengthen the bargaining power of investors who may have historically lacked such leverage. Advisers will also need to obtain investors’ written consent in advance of engaging in practices that raise significant and problematic conflicts of interests.

Looking forward, enhanced disclosures regarding human capital management and the diversity of board members and nominees are part of the agenda. Today, an increasing proportion of public companies derive their value from intangible assets such as human capital — yet a very small percentage disclose their labor costs.

How companies respond to these types of risks, and the impact of these risks on bottom lines and strategies, can be very material to investors. We have a duty to make it possible for investors to have meaningful access to this information.

As is hopefully evident from the preceding discussion, our efforts to modernize our regulatory framework, so that it better meets the demands of our modern times, are wide-ranging.

These efforts also include several consequential rules on open-end funds, money market funds, SPACs, custody of client assets, securities lending, securities-based swaps, corporate share repurchases, and others.

Do you see now why this agenda is so exciting? Maybe not worthy of a world title but no doubt world class.

As one SEC Commissioner out of five, I approach our agenda from a utilitarian perspective: to aim for the greatest good for the greatest number, and to protect investors against harm, particularly working families who invest in our markets to build a brighter financial future.

As an independent capital markets regulator, we have an obligation to execute our laws as effectively as possible and to elevate and protect the public interest.

Modernizing our regulatory framework to adapt it to current realities, bringing transparency to the parts of our markets that are opaque, and harnessing our enforcement powers to fight and prevent fraud, market manipulation, and insider trading — all strengthen market integrity, protect investors, and build market confidence.

Regardless of the challenges we each face in our own jurisdictions, what remains constant is our shared goal of promoting fair and transparent markets through strong oversight. In pursuing this goal, we promote stable markets where capital formation can thrive and where investors can have confidence that they are protected.

It is my hope that the dialogue facilitated by this forum will continue to strengthen our relationships and advance our international cooperation efforts, while at the same time respecting the unique needs of each of our jurisdictions.

Thank you for the opportunity to deliver these remarks and best wishes to all of you for the remainder of the conference.


[1] I’d like to note that my views are my own as a Commissioner of the Securities and Exchange Commission, and I’m not speaking on behalf of my fellow Commissioners or the SEC staff.

This speech was delivered on September 13, 2023, by Jaime Lizárraga, commissioner of the U.S. Securities and Exchange Commission, at the Eurofi conference in Santiago de Compostela, Spain.