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US Securities and Exchange Commission

Gensler Defends 30, 45-Day Comment Period for SEC Rulemaking Proposals

Soyoung Ho  Senior Editor, Accounting and Compliance Alert

Soyoung Ho  Senior Editor, Accounting and Compliance Alert

During a recent virtual event, SEC Chair Gary Gensler defended against criticism that the commission is not providing enough time to the public to weigh in on regulatory proposals issued.

He believes it is important not to delay the comment letter analysis after getting feedback.

So far, the market regulator under Gensler’s tenure usually has provided 30 or 45 days to comment following publication of a proposal in the Federal Register.

But SEC Commissioner Hester Peirce, Republicans on the Hill, and business industry groups have asked the commission to extend the comment deadline. They said it is not enough time to put together a thoughtfully analyzed comment letter for rules that will have great consequences in the capital market. They want to make sure the commission gets it right.

“Congress weighed in on comment periods with the Administrative Procedure Act. Congress is pretty straight forward; they said 30 days,” Gensler said at a meeting of the Exchequer Club of Washington D.C. on January 19, 2022.

“An agency can do more than that,” he said. But “we take into consideration, we put it up on website, we do a fact sheet as well. We have a little bit of public debate when five commissioners talk about it” during open meetings.

For example, the SEC in mid-December last year voted to issue four rulemaking proposals, including stock buyback, insider trading, and anti-fraud provisions for swaps. Except for money market fund reforms—which have a 60-day comment period—the other three have 45 days.

Gensler said it takes on average about two weeks for the proposals to get published in the Federal Register. Sometimes it takes shorter or longer like four weeks.

As of January 21, the four proposals have yet to be published in the register.

“It’s really important to get the public feedback, but it’s also really important to move on, get that feedback and then have the staff—first step after the comment period closes—to do a comment summary file,” Gensler said. “Every regulatory agency does this. It has to read through, sometimes it’s two dozen comments, sometimes it’s thousands of comments. And so, it’s a discipline, just start the next stage of the work and help the staff move on, and sometimes a comment comes in a day later, three days late, we are still working on it.”

He emphasized that it is important to move to the next step in the rulemaking process to determine whether the SEC should repropose, modify, or adopt the proposed rules based upon the feedback.

Gensler was responding to a question by Thomas Quaadman, executive vice president of the Center for Capital Markets Competitiveness (CCMC) of the U.S. Chamber of Commerce. He pointed out that 60 days were provided by regulatory agencies during the Obama administration.

And Quaadman was dissatisfied with Gensler’s answer.

“The proposed text isn’t official until it is published in the Federal Register,” he told Thomson Reuters. It’s “hard to comment on something you can’t read.”

Moreover, “using the minimal amount of time required by law doesn’t really create an atmosphere conducive for input,” Quaadman said.

During the event, another person had asked about what the SEC will do to make sure there is sufficient stakeholder engagement.

Gensler answered that the agency’s door is open, and everyone is welcome to provide feedback even before a proposal is issued because the commission benefits from all input.

However, “we might not always go in the direction that you or your clients want because our client is the American public. Our client is 330 million Americans,” Gensler said. “Your client base and your client’s mission or your personal missions might be different. We respect that. We know there will be give and take in everything. But we still learn from your economic analysis, we learn from your point of view, we learn from your comments even if we go into a different direction. We may agree, we agree well. If we disagree, we disagree agreeably.”

In the meantime, the U.S. Chamber is especially worried about the short comment period on a rule proposal intended to rework the most stringent aspects of the rules governing proxy voting advice adopted in 2020 when Jay Clayton was chairman.

The proposal, issued in November 2021, responded to complaints by investors and proxy advisers that the rules would be counter-productive.

When the rules were adopted a year and a half ago, the SEC was responding to complaints by businesses that proxy advisers, such as Institutional Shareholder Services Inc. (ISS) and Glass, Lewis & Co. who provide voting recommendations on issues ranging from executive compensation to director elections during shareholder meetings, wield outsize power over shareholder votes without much check on their operations.

Institutional investors had said they are generally happy with the service they get from proxy advisers. Some believe rule changes may only end up helping companies who do not have good corporate governance to avoid accountability.

But in a comment letter, Quaadman wrote that CCMC strongly opposes the efforts to rework the rule because it would significantly undermine the 2020 final rules.

“Over the past two decades, the PVABs have increasingly assumed a central role in influencing corporate governance at America’s public companies, all without meaningful SEC oversight,” Quaadman wrote. PVAB is proxy voting advice businesses.

“The PVAB industry’s conflicts and problematic practices are well-documented, and they stand alone as the only participants in the proxy voting process not subject to substantive SEC regulation,” he wrote. ”The Re-Proposed Rules run counter to an extensive administrative record built over more than two decades, and they are plainly animated by political objectives. They seek to advance unreasonable and indefensible policy choices that, if adopted, would reduce investor protection and cause great harm to the US capital markets.”

 

This article originally appeared in the January 24, 2022 edition of Accounting & Compliance Alert, available on Checkpoint.

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