By Richard Baker
| SEC Chairman Mary Jo White; Photo:
Former U.S. attorney Mary Jo White assumes the chairmanship
of the Securities and Exchange Commission with the table set
for a number of reforms that could benefit investors and
markets. While she will have no shortage of issues to address,
there are several priorities that she should focus on early in
With Chairman White's experience as a prosecutor, she will
continue the SEC's focus on enforcement in the marketplace and
we support her in this mission. Rooting out bad actors,
wherever they may be, is essential to the fair, efficient and
transparent function of our capital markets. The SEC must
continue to take a hardline approach, enforcing the rules of
the road for the benefit of all investors.
As for the rules awaiting implementation, which Chairman
White noted in her Senate testimony, the SEC needs to adopt the
Jumpstart Our Business Startups, or JOBS, Act rules for
Regulation D offerings. Last April, with broad bipartisan
support, Congress enacted the JOBS Act to modernize several
aspects of the securities laws and ignite job growth. President
Barack Obama supported the bill and signed it into law. Among
the provisions in the bill, Congress instructed the SEC to
amend its rules to help companies raise funds in "private
placements" under SEC Regulation D, that is, certain securities
offerings not involving sales to the public. Old Regulation D
prohibits virtually any type of public communication,
effectively silencing all private offerings, including
offerings for private funds. The SEC proposed rules to
implement these JOBS Act provisions last August but has not
The value of these changes is not only in greater
transparency for investors, but in helping to realize one of
the main goals of the JOBS Act: helping businesses raise
capital. There is real consensus that our economic recovery
could stall if capital does not get off the sidelines. By
adopting the rule the SEC proposed last August, Chairman White
can help increase business investment, an important national
As the JOBS Act would apply to hedge funds and other private
companies, the SEC has been pressured to narrowly implement
this law with respect to the way these companies are allowed to
communicate with qualified investors, for fear it will endanger
retail investors. It will not. The JOBS Act changes only who
may know about a company conducting a Regulation D offering; it
does not change who may buy into a Regulation D offering. The
JOBS Act limits investments in such companies to qualified
investors, including individuals with at least $1 million of
net worth, excluding their primary residence. Congress has also
constructively asked the SEC to review this qualification level
in 2014 and increase it if appropriate.
Another issue significant to investors and market efficiency
is the coordination of regulation between the SEC and the U.S.
Commodity Futures Trading Commission. The Dodd-Frank Act and
other regulatory mandates have required many hedge fund
managers to register with both the SEC and the CFTC. In
addition to having separate and different registration
procedures, each agency requires its own systemic risk
While the SEC and CFTC made efforts to coordinate some
rules, others have been implemented in a piecemeal fashion,
resulting in burdensome and sometimes conflicting regulations
that have been damaging to investors and the capital markets.
The U.S. is perhaps the only industrialized country that
separates securities and futures regulation, and as a matter of
international competitiveness, the SEC and CFTC must coordinate
more effectively. We urge Chairman White to work with CFTC
chairman Gary Gensler to develop a better-coordinated
Finally, the SEC should also work to finalize the Dodd-Frank
rules for security-based swaps. These derivatives are essential
financial tools to manage risks for investors. Dodd-Frank
imposes an extensive regulatory framework on derivatives to
prevent a repetition of events such as the collapse of AIG.
Although the SEC has issued proposals related to many of the
security-based swap rules, the SEC has yet to finalize many of
Among Dodd-Frank's most important requirements is a law that
requires the most active market participants to clear swaps
through a central clearinghouse, as is commonly done with stock
trades. Clearinghouses process trades, eliminating credit risk
between the parties to the original trade and reducing the
likelihood of systemic problems. These rules can provide
extensive protections and reduce unneeded cost.
We urge Chairman White to swiftly complete all of the SEC's
clearing rules for security-based swaps. The CFTC largely has
completed its work; the SEC must do its part.
Rulemaking is challenging and complex. The SEC has done an
admirable work in soliciting views from a range of stakeholders
before finalizing rules, but Chairman White's SEC must now
focus on finishing the job. There is no need for further delay.
As she said in her confirmation hearing, "The SEC needs to get
the rules right, but it also needs to get them done."
As investors, we could not agree more.
Richard Baker is president and CEO of the Managed Funds
Association of Washington, D.C., the largest hedge fund
industry trade group in the U.S.