SEC Chairman Testifies About SEC’s Direction And 2016 Cyberattack

by Orrick - Securities Litigation and Regulatory Enforcement Group

On September 26, 2017, SEC Chairman Jay Clayton testified before the Senate’s Banking, Housing and Urban Affairs Committee regarding the direction of the SEC under his Chairmanship. He also took the opportunity to address the 2016 cyberattack on EDGAR, the agency’s electronic filing system.

As in his first public speech as SEC Chair, in July 2017, Chairman Clayton’s testimony reveals his focus on issues related to cybersecurity, capital formation, and enforcement actions addressing traditional forms of fraud and misconduct. His testimony further reveals his position that regulations should be retroactively evaluated and relaxed as necessary, in order to account for the direct and indirect costs of compliance.

Below are key highlights of Chairman Clayton’s testimony:


Chairman Clayton first addressed the issue of cybersecurity, noting his—and the SEC’s—increased focused on cyber risk matters. He announced a number of cybersecurity initiatives, including the formation of a senior-level cybersecurity working group, internal and inter-agency incident response exercises, and increased investigations of disclosures by issuers related to cybersecurity risks and data breaches. He also addressed the 2016 cyberattack on the SEC’s EDGAR filing system—which resulted in the unauthorized access to nonpublic information that was potentially used for illicit trading—and the agency’s remediation efforts. Chairman Clayton revealed that, in response to the cyberattack, he formally requested an investigation from the Office of the Inspector General into the cause of the attack, the scope of the data compromised, and the SEC’s response efforts. Further, the SEC initiated an investigation into trading potentially related to the cyberattack.

Disclosure Obligations

A recurring theme of Chairman Clayton’s testimony is the need to re-evaluate and simplify existing disclosure and regulatory obligations based on compliance costs and the interests of companies and everyday investors (whom he referred to as “Main Street investors” or “Mr. and Ms. 401(k)”). To that end, Chairman Clayton announced that the agency would consider a proposal to simplify disclosure requirements under Regulation S-K. Similarly, the agency will undertake efforts to eliminate “redundant, overlapping, outdated or superseded disclosure requirements.” Chairman Clayton particularly focused on the simplification for rules under Regulation S-X and industry-specific disclosure requirements, and the reexamination of CEO pay ratio disclosure rules under Dodd Frank. He also announced the SEC’s continued examination of the Department of Labor’s fiduciary rule, including through the solicitation of public comments from investors and industry participants.

Capital Formation

As in his July 2017 speech, Chairman Clayton reiterated his personal commitment to facilitating and promoting capital formation. He noted his concern for the decline of IPOs, resulting in a decrease of opportunities for Main Street investors to directly invest in high-quality companies. He attributed this decline to increased regulatory compliance costs, and touted a scaled-back disclosure and regulatory system as a way to incentivize companies to go public, while maintaining robust investor protections. To that end, the agency would seek to promote capital facilitation by relaxing disclosure requirements under Regulator S-K (see above), expanding the confidential draft registration statement process under the JOBS Act, and providing increased guidance as to what information may be omitted from registration statements. The agency would also hire an Advocate for Small Business Capital Formation, who would work on facilitating capital formation for small businesses.

Equity, Fixed-Income, and Securities Markets

Chairman Clayton expressed his support for efforts undertaken by the agency prior to his Chairmanship to enhance the transparency in securities markets, including proposed amendments to Regulations NMS and ATS. He also announced the agency’s increased focus on the protection of sensitive market data, including its own use of such data. He also addressed the agency’s efforts to analyze market structures through two pilot programs: the Tick Size Pilot program—which tests the impact of wider tick sizes on the trading of certain companies’ stocks—and a proposed pilot program analyzing the efforts of adjustments to fee caps on equity trading. Separately, Chairman Clayton pushed for increased review and oversight of fixed income markets, particularly through the soon-to-be established Fixed Income Market Structure Advisory Committee.

Enforcement and Examinations

Signaling a departure from former SEC Chair Mary Jo White’s “broken window” approach—which encouraged the pursuit of even the smallest securities violations—Chairman Clayton indicated that he intends to focus the agency’s enforcement efforts on retail investor fraud, investment professional misconduct, insider trading, market manipulation, accounting fraud, and cyber actions. Chairman Clayton also noted the SEC’s increased focus on the examination of registered entities, touting an anticipated 30% increase in investment advisor examinations in 2017 over 2016.

The Agency’s Budget Requests

Chairman Clayton also discussed the SEC’s budget requests, which amounted to $1.6 billion for FY 2018 and $1.7 billion for FY 2019. Chairman Clayton testified that these requests were necessary to lift the hiring freeze implemented at the start of FY 2017, support the agency’s information technology initiatives, and address anticipate real estate costs.

Chairman Clayton’s testimony reflects that we can expect a definite shift in the Commission’s regulatory approach from that of his predecessors. However, time will tell whether, or how, Chairman Clayton’s objectives come to fruition.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Orrick - Securities Litigation and Regulatory Enforcement Group | Attorney Advertising

Written by:

Orrick - Securities Litigation and Regulatory Enforcement Group

Orrick - Securities Litigation and Regulatory Enforcement Group on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.