08 February 2008

Speech Cox: The SEC agenda for 2008

Speaking on the SEC Agenda for 2008, SEC Chairman Christopher Cox outlined the 2008 priorities of work, which will include enforcement as well as on insider trading, securities fraud, and market manipulation by hedge funds and other large, non-public investors.

With regard to the subprime crisis, the SEC work “will be determining whether bank holding companies and securities firms made proper disclosure in their filings and public statements of what they knew about their CDO portfolios and their valuations”, he said.

“We'll determine whether brokers carefully followed suitability requirements when they sold complex debt-related derivatives that shortly afterward went bad. And in this area, as elsewhere, we'll be investigating whether unscrupulous insiders used non-public information to bail out of these securities or to sell them short, in violation of the securities laws”, Cox continued.

The Subprime Task Force will concentrate in particular on the quality of risk controls and liquidity at the level of the holding company for systemically important firms. The role of the credit rating agencies is also of central importance.

The Division of Trading and Markets will focused on evaluating liquidity for an investment bank's holding company, including its unregulated affiliates, is the strength of the firm's internal risk management systems.

“There are also significant accounting questions in the subprime area, such as when off-balance sheet CDO-related liabilities will be forced back on to a sponsor's balance sheet”, Cox said. “The adequacy of public company disclosure surrounding these issues is a key focus for the Division of Corporation Finance, and so they too are important participants.”

In Spring, the SEC will come forward with proposals for new, more detailed rules under the new Credit Rating Agency Reform Act, including proposals on disclosures surrounding past ratings, and rules aimed at enhancing investor understanding.

“I have also asked the Division to present proposed rules to the Commission that begin to address the significant shortcomings that we've identified in the municipal market”, Cox stated. The recent financial stress on monoline insurers has heightened the importance of timely and rigorous disclosure that investors can understand.”

Full speech

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