SEC Investor Advisory Committee Meeting

Securities and Exchange Commission

Investor Advisory Committee Meeting

Thursday, April 2, 2020

Welcome Remarks

Anne Sheehan, Chair of the Securities and Exchange Commission (SEC) Investor Advisory Committee, summarized the meeting agenda before welcoming the remarks of Chairman Clayton and the other Commissioners. Chairman Clayton outlined that the purpose of this meeting is to gather input regarding market challenges and investment-related issues facing retail investors as the SEC addresses the unprecedented national challenge posed by COVID-19. He emphasized that the SEC is functioning well and is standing by to assist however they can. He praised the SEC’s Division of Corporation Finance for their proactive and investor-oriented approach to the pending earnings period. He concluded by stating his belief that the conditional, tailored relief issued by the Division of Corporation Finance, coupled with their detailed guidance regarding COVID-19-related disclosure topics, will ease the burden on issuers and allow them to provide prompt, period-end earning information, regardless of whether they are able to comply with filing deadlines. Commissioners Peirce, Roisman and Lee echoed Clayton’s comments and reinforced the importance of hearing from retail investors in terms of their day-to-day experience so that the SEC can best address their concerns and uncertainty.

Discussion Regarding the Impact of the COVID-19 Novel Coronavirus on Investors and its Implications


  • Penny Pennington, Managing Partner, Edward Jones
  • Christopher W. Gerold, Chief, New Jersey Bureau of Securities; President, North American Securities Administrators Association (NASAA)
  • Gerri Walsh, Senior Vice President, Investor Education, FINRA

Pennington outlined how Edward Jones is responding to the crisis and how they continue to serve their clients in this uncertain time. She specifically noted that in speaking with their clients, Edward Jones can report that there is an increased desire for quality, proactive information. She continued that her firm is engaged in a significant amount of rebalancing activity at the moment and that the recent dislocations in terms of the normal associations between stocks and bonds is a source of consternation for clients. She characterized the need to bring the economy to a full stop as a necessary investment in public health. Pennington continued that Edward Jones is focused on providing client resources as well as access to information as to what the CARES Act does and how the Small Business Administration (SBA) loans will work for small business owners. She concluded by emphasizing the need for confident implementation of the CARES Act and decisive leadership from all levels of government and business.

Gerold outlined what he is observing in the marketplace as it relates to investor protection. He emphasized that NASAA is working in close coordination with the Financial Industry Regulatory Authority (FINRA), as well as the Commodity Futures Trading Commission (CFTC), SEC, and other relevant federal regulators. He reported that all states continue to process licensing operations with little or no disruption and that audits, as well as examinations, are being shifted to a remote forum or being deferred. He continued that NASAA’s focus is on investor protection, especially as the current crisis offers a target rich environment to prey on investors, specifically elderly investors. As such, he stated that NASAA and individual state regulators are working to provide investors with an abundance of information concerning fraud. He outlined his belief that investor fraud and scam opportunities will likely increase as many Americans begin to receive their stimulus checks. He said that NASAA is also monitoring additional areas of concern, including, but not limited to, market volatility, market disruptions, transparency in private markets, the possibility of broker-dealer failure as well as the increased strain on call centers. He concluded that it is NASAA’s position that there should be a pause of at least 90 days in terms of the promulgation of new rulemaking.

Walsh provided an overview of the regulatory relief steps taken thus far by FINRA in response to COVID-19 as well as their focus on monitoring for fraud, illicit schemes, and opportunists seeking to take advantage of this crisis. She reported that FINRA remains fully operational in a remote work capacity and that they are committed to providing up-to-date guidance and resources for investors, industry participants and other stakeholders. She highlighted that FINRA has decided to administratively postpone all in-person arbitration and mediation proceedings through May 31st, 2020 and that virtual hearing services are already available. Walsh stated that FINRA has not observed a significant increase in the amount of complaints that they receive from retail investors. She did note that the complaints that they do receive tend to focus more on the current market volatility and operational challenges as opposed to fraud and investor schemes.

Question & Answer

Commissioner Lee reinforced Gerold’s comment regarding the lack of transparency in private markets during this time of uncertainty. She encouraged members of the committee to come to the SEC with any and all thoughts or ideas on potential workable approaches to address this concern.

Rick Fleming, Investor Advocate, SEC, stated that he has heard from some retail investors that want to ban the practice of short selling. He continued that he does not agree with this position and that a ban on short selling could actually harm retail investors.

In response to a question regarding the current functioning of the fixed income markets, Clayton stated that he predicts continued market segmentation and market discontinuities due to increased rotations out of certain instruments.

Various committee members, including Fleming, noted the widespread lack of understanding on how leveraged and inverse ETFs are intended to operate. Fleming specifically noted that the current levels of high volatility has exposed this lack of understanding. Clayton responded that this is very much an area of concern and he is currently in the process of examination and information gathering.

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