SEC Chairman Jay Clayton, who has overseen several major policy programs over his term including proxy advisory reform and a focus on principles-based disclosure rules as opposed to prescriptive disclosures, has confirmed that he will step down from his role on the commission at the end of 2020. He had publicly acknowledged plans to leave the Commission following the 2020 election irrespective of the outcome.
Clayton also made a notable final recommendation to companies regarding 10b5-1 plans. The media has reported negatively on pharmaceutical executives selling large blocks of shares after announcing successful COVID vaccine trials, by using recently enacted 10b5-1 plans. In response to the negative optics surrounding such sales, Clayton recommended companies consider a cooling-off period of four or six months between the implementation of a plan and the first permitted sales. He also recommended that companies avoid implementing plans when they are in possession of material non-public information.
Potential SEC Chair nominees from the Biden administration include Gary Gensler and Preet Bharara. Mr. Gensler, known for his “hard-charging leadership style,” 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 US Attorney for the Southern District of New York where he “aggressively investigated” insider trading and other 2008 financial crisis wrongdoing. Financial policy stakeholders have highlighted concerns with Messrs. Gensler and Bharara such as activist or punitive regulatory actions. Other potential nominees include current commissioner Allison Lee and former Democratic commissioners Kara Stein or Robert Jackson Jr.
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 pass. Additionally, as the Democrats are unlikely to have full control 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.
