* Schapiro says SEC must avoid "unintended consequences"
* Plan is largely similar to the FDIC's broad bank rule
* SEC also proposes less rating reliance for money funds
* Extends comment period on clearinghouse voting power
(Adds investment adviser reaction, paragraph 13)
By Sarah N. Lynch
WASHINGTON, March 2 U.S. securities regulators
issued a proposal on Wednesday to curb bonuses at brokerage and
investment advisory firms over the objections of Republicans on
the panel and even some doubts expressed by Chairman Mary
The Securities and Exchange Commission voted 3-2 to issue
for comment a plan for the wealth management industry that is
substantially similar to one proposed by the Federal Deposit
Insurance Corp last month for banks.
The measures, required by last year's Dodd-Frank financial
law, are aimed at reducing incentives for executives and other
top employees to take excessive risks.
They require more disclosure of pay schemes and in some
cases deferral of bonus money to later years.
Some SEC members were concerned by how the agency's pay
proposal would affect the largest brokerage firms and financial
advisory companies, which would include units of large banks
such as Morgan Stanley (MS.N) and Bank of America (BAC.N).
The plan would also likely hit some advisers of large hedge
funds as well, although the SEC did not elaborate on which
particular companies might be impacted.
"Larger broker dealers and investment advisers may find it
more difficult to recruit and retain quality personnel,"
Republican Commissioner Troy Paredes told the SEC meeting. "It
is potentially compromising the competitiveness and capability
of these financial institutions."
Nevertheless, the broader U.S. plan to limit financial
services pay is markedly softer than the European Union, which
in December set guidelines that top bankers be limited to
receiving 20 percent of their annual bonuses upfront in cash,
with some exceptions.
In other measures mandated by Dodd-Frank, the SEC on
Wednesday proposed reducing money market fund reliance on
credit-ratings and extended the comment period on a plan to
restrict the voting power of large financial companies in
WATCHING FOR "UNINTENDED CONSEQUENCES"
One part of the SEC's proposal would target broker-dealers
and investment advisers with proprietary assets over $1
billion. Any firm that meets that threshold would need to make
disclosures to regulators about their pay structures.
Those firms would also generally be banned from creating
pay schemes that may lead executives, directors or principal
shareholders to take inappropriate risks or take actions that
result in a material loss.
Those provisions are expected to affect around 132
brokerage companies and 70 investment advisory firms. But the
SEC did not provide detail on which individuals at the firms
may be impacted.
David Tittsworth, executive director of the Investment
Adviser Association, doubted the proposal would affect a large
number of advisers, expecting it would only apply to publicly
traded firms, or those affiliated with a large bank or broker.
Danny Sarch, a brokerage industry recruiter based in White
Plains, New York, said the SEC's proposal is misdirected,
partly because brokers lost a lot of money during the financial
crisis, showing their interests were tied to shareholders'.
"Retail brokers were not responsible for the financial
meltdown," Sarch said.
Another piece of the rule, meanwhile, targets executive
officers and the heads of major business lines who work at
financial firms with $50 billion in proprietary assets. That
part of the rule would require these firms to defer at least
half of executives' bonus pay over a three-year period.
SEC staff and commissioners said they were keen to hear
from the public about whether the proposed compensation
structure was properly tailored to different business models,
particularly investment advisers.
Schapiro said she was hoping in particular to receive
comments about private fund advisers, "given how they often
structure their compensation."
"This is an area where we want to be very attuned to
unintended consequences," she said.
CREDIT RATINGS, CLEARINGHOUSES
The SEC on Wednesday also began to tackle the removal of
credit-rating references in federal regulations affecting money
market mutual funds.
Dodd-Frank requires federal agencies to help reduce
reliance on them by markets, a response to criticism that
raters gave glowing reviews to investments linked to sub-prime
mortgages just ahead of the crisis.
In the area of over-the-counter derivatives, the SEC
proposed new governance standards for clearinghouses and also
reopened the public comment period on a contentious rule that
would place limits on the voting power that financial firms can
wield in derivatives clearinghouses and trading facilities.
The plan on voting caps has been widely opposed by big Wall
Street banks, although the Justice Department's Antitrust
Division has said it does not go far enough.
The governance and operations proposal addresses the
financial resources that clearinghouses must hold to withstand
defaults by members. It also includes provisions to prevent
clearinghouses from denying memberships to smaller firms.
Major clearinghouses and trading platforms include
LCH.Clearnet, IntercontinentalExchange's (ICE.N) ICE Trust, and
Tradeweb, a trading platform majority owned by Thomson Reuters
(TRI.TO) and minority-owned by big banks.
(Reporting by Sarah N. Lynch in Washington; Additional
reporting by Helen Kearney in New York; editing by Tim Dobbyn)