By Ann C. Logue
The week started off with some holidays and ended with a big meeting, so the SEC didn’t issue any enforcement actions. However, the meeting could have implications for the alternatives industry.
On September 9, the SEC convened a quarterly meeting of the Investor Advisory Committee, which was established by the Dodd-Frank Act to receive the input of investors on regulatory and disclosure matters in order to maintain trust in the financial markets. The group is made up of lawyers, consumer advocates, representatives from large pension funds, and others who represent both retail and institutional investors.
The agenda for this meeting included a discussion of SPACs and of 10b5-1 plans for insider sales of stocks. While the full minutes have not yet been published, the agenda, draft documents, and published statements of SEC staff members give good clues about the nature of the discussion.
First and foremost, the committee wants more regulations about SPACs. In particular, it wants better disclosure of the sponsors, their contributions to the fund, and any conflicts of interest they may have; a clear discussion of different financial incentives and related dilution, including for promote shares or founder shares; a discussion of competitive factors and risks affecting the search set of potential merger partners; and information about how the ability of the target to become an operating company will be assessed.
On the matter for 10-b5-1 plans, the concern is tightening regulations to ensure that corporate insiders do not use them to trade on material non-public information, which should not be a surprise.
In his statements, SEC chair Gary Gensler absolutely agreed with the committee’s draft on SPAC regulation, so expect more regulation that reduces some of the loopholes that SPACs have enjoyed.
Gensler also addressed online trading platforms, a key market microstructure issue. The trading platforms, along with wealth management apps and robo-advisors, are fueled by predictive analytics and digital engagement practices that may benefit the platform operators at the expense of the investors. The commission has put out a request for comment on the issue, and it is asking the Investor Advisory Committee to discuss it at its next meeting.
By the way, the Investment Advisory Committee and the other SEC committees (Asset Management, Fixed Income Market Structure, Small Business Capital Formation) have standing calls for applications from potential committee members, if you are interested in getting in on the fun. You can go to each committee’s web site for more information.