SEC Commissioner Stein Proposes More Municipal Market, Private Equity Fund and ETF Transparency
SEC Commissioner Kara Stein delivered remarks at the Columbia Law School Conference on Current Issues in Securities Regulation, discussing transparency in the municipal securities and private equity markets, as well as exchange traded funds ("ETFs").
Commissioner Stein suggested regulators try to improve municipal securities market transparency by providing basic post-trade pricing disclosure on customer confirmations for principal transactions, and providing greater pre-trade transparency. She encouraged the public to weigh in on the MSRB proposal to require disclosure on confirmations of investors' transactions costs, as well as the related proposal by FINRA. In particular, Commissioner Stein stated that commenters should focus on whether the disclosure of the price differential should be a percentage of par value, a total dollar amount, or both.
Additionally, Commissioner Stein provided recommendations to give ordinary investors more equal access to basic pre-trade information, suggesting: (i) amending Regulation ATS to require public disclosure of pricing information and (ii) requiring broker's brokers to publicly disclose pricing information.
Furthermore, Commissioner Stein discussed transparency in private equity markets, recommending that private equity funds improve their own disclosures of (i) fees that are charged to portfolio companies, and (ii) performance information, generally presented as an internal rate of return.
Commissioner Stein finally discussed ETFs, explaining that the SEC has been considering "novel exemptive applications" for actively managed ETFs that propose to provide less transparency regarding their portfolio holdings. Commissioner Stein explained that the growing complexity of ETFs, particularly index-based ETFs, caused the SEC to traditionally require ETFs to disclose portfolio holdings each day. According to Commissioner Stein, this daily transparency requirement has effectively provided a "practical ceiling" on the aggregate size of ETFs.
She explained that exchange traded managed funds ("ETMFs"), which more closely resemble a mutual fund than an ETF, have the potential to break through this ceiling and provide cost savings to investors. However, Commissioner Stein stated that broader questions about exchange traded products ("ETPs") must be answered for investors to see these advantages, mentioning that she has asked Chair White to prioritize a written request for comment to the SEC to provide a formal mechanism for receiving public input on issues related to ETPs.