SEC chairman signals plans to scale back corporate disclosure rules

(Reuters) - Wall Street’s top U.S. regulator on Wednesday signaled his support for potentially scaling back the scope and breadth of disclosure rules and compliance costs imposed on public companies, in an effort to entice more corporations to list on the stock market.

Jay Clayton, Chairman of the U.S. Securities and Exchange Commission (S.E.C.) speaks to the Economic Club of New York in New York City, U.S., July 12, 2017. REUTERS/Brendan McDermid

In his first major address since becoming chairman of the U.S. Securities and Exchange Commission (SEC) earlier this year, Jay Clayton laid out his regulatory philosophy for how he plans to run the agency and said the SEC staff was working to prepare proposals aimed at reforming the rules on disclosure.

In the speech, delivered at the Economic Club of New York, details about the specific regulations that he would like to adopt or amend were scant.

But his comments broadly called for efforts to scale back unnecessary corporate disclosures, reduce compliance burdens on small- and mid-sized companies, ramp up the enforcement division’s focus on protecting retail investors from run-of-the-mill frauds, and taking better care to retrospectively review SEC rules to ensure they are having the desired effect.

Such efforts would be in line with steps the SEC took late last month, when it moved to allow all public companies to file paperwork confidentially for initial public offerings.

“While there are many factors that drive the decision of whether to be a public company, increased disclosure and other burdens may render alternatives for raising capital, such as the private markets, increasingly attractive to companies that only a decade ago would have been all but certain candidates for the public markets,” he said.

In one case that may reflect Clayton’s enforcement approach to protecting retail investors, the SEC on Wednesday charged 13 people with involvement in a Long Island, New York scam that cajoled dozens of elderly and other investors into buying penny stocks, bilking them out of more than $10 million.

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Clayton’s comments are likely to be seen as welcome news to corporate lobbying groups such as the U.S. Chamber of Commerce, which has long criticized an array of SEC disclosure rules for cluttering up corporate filings with unnecessary information.

The Chamber has often sued the SEC over rules requiring disclosures that it said were not material, and has staunchly lobbied Congress to beat back other measures championed by pension funds, unions and progressive-leaning groups.

The Chamber declined to comment.

Clayton appeared on Wednesday to echo some of their concerns generally, lamenting that lawmakers and regulators have “significantly expanded the scope of required disclosures beyond the core concept of materiality.”

He also urged companies to apply to the SEC for requests to modify what they are required to include in their routine financial reporting, a process that is allowed under current SEC rules.

Clayton’s plan to scale back unnecessary disclosures could spark concerns among progressive groups pushing for new rules, particularly those who support requiring public companies to provide investors with information about their political spending.

A petition submitted to the SEC in 2011 calling for a political spending rule garnered a record number of signatures, but to date, the agency has not acted on it.

Lisa Gilbert, the vice president of legislative affairs for Public Citizen, a non-profit watchdog group in support of the rule, said Clayton’s interest in expanding the menu of public investment options for retail investors means she hopes he will be open to considering it.

“I assume he will remain open-minded to what people are asking his agency to do,” she said.

In addition to his comments on public company requirements, Clayton also said he plans to have the SEC launch a new fixed income market structure advisory committee to scrutinize the current rules and identify potential reforms.

Clayton said the SEC will also consider a pilot program in coming months to study the impact of the fees and rebates that exchanges charge and provide to brokers.

Editing by G Crosse and Lisa Shumaker