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SEC Open Meeting

Securities and Exchange Commission

Open Meeting

Wednesday, January 26, 2022

Topline

  • The Commission voted to propose amendments to Form PF and requirements for private equity and liquidity fund advisors, rules to bring Alternative Trading Systems (ATS) under the regulatory umbrella, and an amendment to the SEC rule regarding the definition of an “exchange.”
  • Commission Chair Gary Gensler also defended the Commission’s recent trend of 30-day comment periods by suggesting that – considering that the Commission posts its proposals on its website a few days after announcing them – the 6-8 weeks of lead time taken by the Federal Register to post a rule proposal should be considered part of the total time available to stakeholders to prepare comments, effectively lengthening the 30-day period by 6-8 weeks.

ITEM 1: Form PF Amendments

The Commission voted to propose amendments to Form PF, the confidential reporting form for certain SEC-registered investment advisers to private funds, to require new current reporting of certain events for large hedge fund advisers and advisers to private equity funds, decrease the reporting threshold for large private equity advisers, and revise reporting requirements for large private equity advisers and large liquidity fund advisers. The proposals have a 30-day comment period.

Gensler explained changes to the industry since the adoption of Form PF in 2011, including the private fund industry’s growth in size to $11 trillion, the evolution of its business practices, the complexity of fund structures, and its investment strategies and exposures. He stated that the Commission has identified significant information gaps and situations where the Commission would benefit from additional information.

Commissioner Allison Herren Lee stated that the proposal would provide the SEC and Financial Stability Oversight Council (FSOC) with more data to inform their work by requiring certain advisers to timely report significant events such as deep losses, counterparty defaults, or the inability to meet margin calls. She added that these kinds of events raise not only investor protection concerns but, in some cases, may also implicate systemic risks of the type that the FSOC was designed to address.

Commissioner Hester Pierce stated that Congress did not conceive of Form PF to facilitate the Commission’s desire to inoculate well-heeled investors against downturns, losses, or fund failures and argued that the proposal disregards these facts and represents a fundamental shift in Form PF’s scope and purpose. She also said the proposed changes to the reporting threshold for large private equity advisers, reducing the threshold from the current $2 billion to $1.5 billion private equity assets under management, is backed by unsatisfying and potentially harmful reasoning.

ITEM 2: Redefinition of Exchange and ATS-G

The Commission voted to propose rules to bring more Alternative Trading Systems (ATS) that trade Treasuries and other government securities under the regulatory umbrella and amend the SEC rule regarding the definition of an “exchange” to address a regulatory gap. The proposals have a 30-day comment period.

Commissioner Pierce criticized the ATS proposal as too long and complex to only allow for a 30-day comment period. She also said that the staff’s recommendation to expand the definition of exchange could deter innovation and dissuade entry to the market. She added that the ATS proposal would impose burdens and replay issues from the last changes to ATSs.

Gensler asserted that the Federal Register is running 6-8 weeks behind and that, even though the 30-day comment period clock starts when a proposal hits the register, the Commission will put proposals on its website sooner and that stakeholders should check the Commission’s website in the next couple of days. He argued that the actual length of time for comment is effectively longer than 30 days because of the Federal Register’s lead time and the Commission’s posting of the proposal on its website toward the beginning of that 6–8-week lead time. Gensler concluded that the amendments voted on support greater resiliency and access to the trading market, that it is appropriate to revise the roles with regard to the definition of exchange, and that the amendments build on 2020 proposals and feedback from the public.

Commissioner Caroline Crenshaw stated that the proposals would regulate similar markets in a similar way, bring communication protocol systems under regulatory framework, and update the definition of exchange to help ensure a level playfield for entities performing similar functions and ensure investor protection. She added that the ATS proposal would also shrink the disparity between ATSs and exchanges.

For more information on this hearing, please click here.

For an archive of past SIFMA hearing coverage, please click here.