November 20, 2020
SEC Chairman Jay Clayton (I) confirmed that he will step down from his role on the Commission, clearing the way for a Democratic majority at the agency in the coming year. Previously, he had publicly acknowledged plans to leave the Commission following the 2020 election irrespective of the outcome.
Immediate implications for the SEC? In the near term, the SEC will function with four commissioners, two from each party. That likely means that any rulemaking or guidance viewed as partisan is unlikely to be approved. Additionally, as the Democrats are unlikely to have full control of both the Senate and the House, the most recently completed rulemakings (proxy advisory reform, shareholder proposals, and HCM disclosures) are likely to go into effect as they currently exist.
With Democrats in control, the SEC regulatory agenda is predicted to focus on revising the proxy advisory reform rules and expanding disclosures related to climate risks and human capital metrics, especially related to diversity and equal pay. Further, the SEC will likely address the remaining, unfinished elements of the Dodd-Frank legislation including pay-for-performance disclosures.
Chairman Clayton has overseen several major policy programs over his term, including easing access to capital markets, proxy advisory reform, human capital disclosure guidance, shareholder proposal reform, and an overall commitment to principles-based disclosure rules as opposed to prescriptive disclosures.
Potential nominees from the Biden administration include Gary Gensler and Preet Bharara. Mr. Gensler served as the head of the Commodity Futures Trading Commission and promoted an active regulatory approach. He is currently working with the Biden transition team on an agenda for the financial regulatory agencies. Mr. Bharara served as the U.S. Attorney for the Southern District of New York where he pursued convictions related to the financial crisis. Financial policy stakeholders have highlighted some concerns with Messrs. Gensler and Bharara such as activist or punitive regulatory actions. Other potential nominees include former Democratic SEC commissioners Kara Stein and Robert Jackson Jr.
Meanwhile, Chairman Clayton had some final advice for corporate insiders. Recently, there have been reports of executive stock sales following major corporate announcements using recently developed 10b5-1 stock trading plans. In response to the negative optics surrounding such sales, Chairman Clayton recommended companies consider a cooling-off period between the implementation of a plan and the first permitted sales. He specifically recommended either four or six months. He also recommended that companies avoid implementing plans when they are in possession of material non-public information.
Outlook: Current expectations are that the incoming Biden administration is likely to find a middle path between the centrist and progressive elements of their party. However, Senator Elizabeth Warren (D-MA) could also be a factor, influencing the financial regulatory agenda and advocating for more progressive nominees and executive actions.