May 8, 2014 / 4:25 PM / 6 years ago

U.S. SEC's Stein says investor rules need reform

WASHINGTON, May 8 (Reuters) - A top U.S. regulator called on Thursday for a broad swath of investor reforms, from new measures to empower shareholders in corporate elections to better disclosure on how retail orders are routed and executed.

Kara Stein, a Democratic member of the Securities and Exchange Commission, presented her ideas at the Council of Institutional Investors annual conference in Washington.

Stein drew applause when she threw her support behind requiring universal proxy ballots, a plan that CII formally petitioned the agency to consider in January.

“It is time for the commission to consider permitting, if not mandating, universal proxy ballots,” Stein said.

She also questioned the process for determining how and when the SEC permits companies to exclude shareholder proposals on corporate ballots.

Stein lamented that rules on the books requiring retail brokerages like TD Ameritrade and Charles Schwab to disclose details on order routing and best executions are stale and need to be updated.

“We need to revise those standards to make sure that data is more useful in a computerized age,” she said.


Stein’s comments on corporate election matters differ from the views of some fellow SEC commissioners.

In March, SEC Commissioner Daniel Gallagher, a Republican, called for some opposite reforms, including measures to restrict the voting power of activist shareholders and limit what types of shareholder proposals can be considered.

The ideological divide on shareholder voting matters has also been evident on the SEC’s website, where groups with dueling interests have submitted petitions seeking new rules.

The CII’s petition asks the SEC to mandate the use of a universal proxy ballot on which all board nominees, by both corporate management and shareholders, are considered on a single slate in a contested election.

Currently, such ballots are only permitted with a nominee’s consent. As a result, the CII said, management’s ballot often does not let voters “split their ticket.”

The U.S. Chamber of Commerce and others recently asked the SEC to amend its rules to make it harder for shareholders to include proposals on the ballot that failed in prior votes.

Stein did not directly address the Chamber’s proposal, but called for improving the process for how the SEC reviews requests to exclude shareholder proposals.


Stein also raised questions about whether SEC disclosure rules are strong enough to help retail investors determine if they are getting best execution. She questioned whether conflicts of interest over payment for order flow may impede best execution, which requires brokerages, among other things, to achieve the best price in the shortest possible time frame.

Questions have been raised recently about whether SEC rules permitting retail brokerages to receive incentive fees and rebates in exchange for sending orders to certain venues could be impeding best execution.

Earlier this week, Reuters reported that the SEC’s enforcement division recently sent subpoenas and other requests to brokerages as part of an investigation of best execution and payment for order flow. [ID: nL2N0NN1ZB]

Firms are required to submit quarterly reports detailing their payment-for-order-flow arrangements, as well as monthly reports on best execution.

Stein did not offer specific proposals on how disclosure can be improved. (Reporting by Sarah N. Lynch; Editing by Dan Grebler)

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