With the announcement that Securities and Exchange Commission Chair Jay Clayton will be stepping down before year’s end, attention has turned to what changes may be afoot for the SEC under a Biden administration.
The first thing to note is what won’t change with a new administration and new SEC chair.
In any given year, the SEC’s Enforcement Division brings between 700 and 900 new actions, and those new cases fall into a bell curve that doesn’t shift dramatically from year to year or administration to administration.
That is, the SEC would have brought the vast majority of any year’s cases (those in the middle of the bell curve) regardless of who was in the White House or who was chair of the SEC. When I was in the Enforcement Division during the transition to the George W. Bush administration from the Bill Clinton administration — from having Arthur Levitt as SEC chair to having Harvey Pitt — no one told me to put my pencil down on any of my cases.
It’s the outlier cases, which are few in number, at the edges of the bell curve where the change is most pronounced.
The most notable change at the SEC, of course, will be the “tone at the top.”
So, for example, Chair Mary Jo White’s “broken windows” philosophy stressed enforcement action even for minor transgressions, reflecting her background as a criminal prosecutor.
By contrast, Clayton’s emphasis on increasing market access to “Main Street” investors reflected his background and priorities.
Expect the Biden administration SEC chair to be more in the vein of White, with many expecting another former U.S. attorney such as Preet Bharara to be considered for the post.
In practical terms, the change in SEC chair will result in some obvious differences from the current SEC agenda. For all market participants, expect to see a shift from principles-based reporting requirements, i.e., a requirement to disclose all material information whatever it may be, to a more prescriptive approach under which certain specific topics are required to be disclosed, such as environmental, social and governance (ESG) issues, human capital resources, conflict minerals and others.