The SEC's next regulatory target could be index providers

1/15/2022 2:33:00 AM

The SEC may set minimum standards for governance of securities indexes and mandate transparency regarding methodology, licensing fees and potential conflicts...

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“Investors who depend on indexes for their retirement or their children’s education deserve to know how their money is being invested and that the investment is in their best interest. The commission should consider ways to ensure these goals.”

The SEC may set minimum standards for governance of securities indexes and mandate transparency regarding methodology, licensing fees and potential conflicts...

“The choice to include or not include a company in the S&P 500 moves billions of dollars of American families’ money in and out of that company,” he added. “That choice is subject to very little oversight and it raises potential conflicts of interest that have never been addressed by financial regulators.”

SEC Commissioner Caroline Crenshaw told MarketWatch in a statement that she supports the agency investigating the topic.Andres Vinelli, vice president for economic policy at CAP and the former chief economist at the Financial Industry Regulatory Authority, pointed to new research that indicates index providers could be adjusting their inclusion criteria to benefit issuers with which they have a financial relationship.

Read more: MarketWatch »

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Ripple’s Top Lawyer Urges SEC to Move Case as Swiftly as Possible.s_alderoty says that SECGov has created an uneven playing field with its approach to regulations what ? right after this one he wont tolerate any more ? or the next one after this ? Hello Shibarmy, I am from India I will help burn shibarmy's shib I am going to start a youtube channel of which I will give 50% profit in Shibburn. In this I will need the help of SHIBARMY that you will help me. Contact SHIB Team and Stevencooper Retweet Follow Share Idk why american lawmakers are agains any kind of crypto , even if it is not private 🤔

Ripple’s Top Lawyer Urges SEC to Move Case as Swiftly as Possible⬆ +11 Ripple’s Top Lawyer Urges SEC to Move Case as Swiftly as Possible cryptocurrency

SEC Must Surrender Hinman Email on Ether to Ripple, Judge RulesThe SECGov must surrender an email with a draft of former director William Hinman’s speech on whether ether is a security to Ripple in an ongoing lawsuit the agency filed against the crypto startup, a judge ruled. nikhileshde reports SECGov Ripple nikhileshde PrinceDonnell_ SECGov Ripple nikhileshde Is Ripple xrp even relevant anymore? If anything the SEC destroyed $XRP’s chances to evolve into something..maybe. Crypto competitors are years ahead & $HBAR is eons ahead of blockchain in tech & potential. Not a hater, just reality. hedera SECGov Ripple nikhileshde the biggest mistake in my life is invested on xrp

Ripple Scores Win in Lawsuit as Judge Rules SEC Must Surrender Hinman Email on Ether⬆ +13 Ripple Scores Win in Lawsuit as Judge Rules SEC Must Surrender Hinman Email on Ether cryptocurrency

Ripple’s Top Lawyer Urges SEC to Move Case as Swiftly as Possible.s_alderoty says that SECGov has created an uneven playing field with its approach to regulations what ? right after this one he wont tolerate any more ? or the next one after this ? Hello Shibarmy, I am from India I will help burn shibarmy's shib I am going to start a youtube channel of which I will give 50% profit in Shibburn. In this I will need the help of SHIBARMY that you will help me. Contact SHIB Team and Stevencooper Retweet Follow Share Idk why american lawmakers are agains any kind of crypto , even if it is not private 🤔

Ripple’s Top Lawyer Urges SEC to Move Case as Swiftly as Possible⬆ +11 Ripple’s Top Lawyer Urges SEC to Move Case as Swiftly as Possible cryptocurrency

Few ideas hold sway over U.Gary Gensler recently used a football metaphor to highlight the enforcement of rules..By Jan 14, 2022 at 12:33 a.

S. markets and the economy today more than the wisdom of passive index investing. Imagine a football game w/o referees. Vanguard founder Jack Bogle’s once-eccentric belief — that an individual investor’s best recipe for long-term gains is a diversified portfolio of securities and a relentless focus on keeping fees low — is now the market’s most widely held philosophy. It wasn’t just the strength of Bogle’s ideas, however, that created an environment where funds that passively track a broad market index like the S&P 500 SPX, +0. The game isn’t fair & maybe after a few min, it isn’t fun to watch.08% now manage more than half of the roughly $11 trillion invested in domestic equity funds. The SEC sued Ripple and members of its leadership at the end of 2020 on charges it sold and continues to sell the XRP cryptocurrency in violation of federal securities law.

A series of legal and regulatory changes over the past 50 years laid the foundation for passive investing’s dominant role in today’s markets, and the Securities and Exchange Commission may now be set to rein in some of the unintended consequences that previous reforms wrought, according to interviews with current and former regulators. — Gary Gensler (@GaryGensler) January 12, 2022 Alderoty, however, criticized the SEC for using “regulation by enforcement” in order to achieve charity, claiming that it creates an uneven playing field that creates winners and losers. “Fundamentally, millions of American families don’t choose what they invest in, an index provider chooses what they invest in,” Robert Jackson, who served as an SEC commissioner from 2018 to 2020, told MarketWatch. “The choice to include or not include a company in the S&P 500 moves billions of dollars of American families’ money in and out of that company,” he added. Due to worsening pandemic conditions, Ripple and the SEC recently filed a joint letter, asking Judge Sarah Netburn to postpone the expert discovery deadline until Feb. “That choice is subject to very little oversight and it raises potential conflicts of interest that have never been addressed by financial regulators.” The Center for American Progress, a left-leaning think tank, issued a report Friday, previewed exclusively to MarketWatch, that argues that the SEC and other financial regulators “should adopt a comprehensive regulatory regime for financial products tied to indexes,” including setting minimum standards for governance of indexes and mandating transparency regarding methodology, licensing fees and potential conflicts of interest. Expert discovery is currently scheduled to end on Jan. Hinman gave the speech in June 2018, telling the audience at a conference that in his view, ether was not a security.

The SEC, which is headed by Gary Gensler, may soon act on this recommendation. In its recently published regulatory agenda, the agency said it would consider asking the public to comment on the role index providers play in the asset management industry. Eight expert witnesses are yet to be deposed due to travel difficulties and “unanticipated personal matters. SEC Commissioner Caroline Crenshaw told MarketWatch in a statement that she supports the agency investigating the topic. “Trillions of dollars are tied to the performance of indexes, yet it’s not always clear how indexes are constructed or governed,” said Crenshaw, a Democrat. Shiba Inu (SHIB) Rallies 8% on Robinhood Listing Rumors According to Fox Business reporter Charles Gasparino, Ripple’s legal team sees a silver lining in the delay since it will be possible to depose witnesses for a seven-hour period. “Investors who depend on indexes for their retirement or their children’s education deserve to know how their money is being invested and that the investment is in their best interest. Hinman’s speech reflected his own views, he said at the time, a point the judge referenced on Thursday in her ruling.

The commission should consider ways to ensure these goals.” Index membership for sale? Andres Vinelli, vice president for economic policy at CAP and the former chief economist at the Financial Industry Regulatory Authority, pointed to new research that indicates index providers could be adjusting their inclusion criteria to benefit issuers with which they have a financial relationship. In November, academics Kun Li and Xin Liu of Australian National University and Shang-Jin Wei of Columbia University published research which argued that S&P Global’s index division has significant discretion over which firms ultimately end up in the S&P 500 and that “the discretion is often exercised in a way that encourages firms to buy fee-based services from the S&P.” “This happens to issuers that are companies, but could happen with whole countries,” Vinelli said in an interview. “If you’re managing a bond fund, countries might want to have their bonds in your fund and there might be levers countries can use to induce you to do that.Accordingly, emails concerning the speech or draft versions are neither predecisional nor deliberative agency documents entitled to protection.

” S&P disputes the accuracy of the report. “This non-peer-reviewed paper is flawed and contains a number of misleading and inaccurate statements about the S&P 500, its methodology and eligibility rules, and the impact of index inclusion,” April Kabahar, a spokesperson for S&P Global SPGI, -0.90% said in a statement to MarketWatch. “S&P Dow Jones Indices and S&P Global Ratings are separate businesses with policies and procedures to ensure they are operated independently of one another. Our Index Governance segregates analytical and commercial activities to protect the integrity of our indices. Other documents the SEC will keep privilege over include communications between SEC crypto czar Valerie Szczepanik and a U.

” The Wall Street Journal reported in 2019 that MSCI Inc. MSCI, -1.25%, the provider of the closely followed Emerging Markets Index, was pressured by the Chinese government to include domestic Chinese stocks in the index. The report cited unnamed sources which said that the Chinese government directed asset managers in the country to withhold business from MSCI after it had previously declined to include those stocks. MSCI said in response to the article that its index-inclusion process is run by a separate division than its commercial operations and that its criteria are public and transparent. Read More: Ripple Waiting for SEC Suit Resolution Before Going Public, Says CEO DISCLOSURE The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a.

Investment advising in disguise SEC rules require that that mutual funds select a benchmark index and to report the fund’s performance relative to that index, and this mandated practice of benchmarking has produced a legally enshrined source of revenue for index providers, who charge fund managers licensing fees. Adriana Robertson, a professor of finance and law at the University of Toronto, has analyzed the methodology of more than 600 equity indices that U.S. funds benchmark themselves to. She found that the vast majority of indexes serve as a benchmark for just one fund, reflecting the fact that index providers often create bespoke indices at the direction of fund companies, which offer products that track these tailor-made compilations of securities.

“They are being created really for the use of the fund,” she said in an interview, adding that this practice of stock selection on the part of index companies should force the SEC to consider them investment advisers and regulate them as such. If the SEC were to enforce the law, she added, index providers that act like investment advisers would need to register with the SEC and assume a fiduciary responsibility to their clients. “Right now this is a completely unregulated relationship,” Robertson said. Robertson argued that this loophole creates an uneven playing field between active managers who want a relationship with an adviser and index funds that outsource that function to index providers. “Either we think these rules are doing something helpful, or we don’t,” she said.

“And if they’re not doing anything, or they’re so burdensome that the costs outweigh the benefits, we shouldn’t subject anyone to them.” Systemic risks This loophole is not the only way in which financial regulators have encouraged the growth of index investing. Michael Green, portfolio manager and chief strategist at Simplify Asset Management, says that a series of regulatory and legal changes over the decades has been a necessary component in the widespread adoption of index funds by the investing public. Green points to a 1994 decision by former SEC Chairman Arthur Levitt to not enforce a provision of the 1940 Investment Company Act that would had prevented index fund providers from using derivatives to allow them to better track the performance of indexes. A law passed in 2006 aimed at bolstering Americans retirement savings created incentives for more workers to join 401(k) plans and for employers to choose index funds as the default offering.

Today, Green says, nearly 100% of all new 401(k) money entering the market does so through index funds. “We have a cumulative dynamic where a lot of small policy changes, each one of them seemingly inconsequential, facilitated the growth of passive management to this point,” Green told MarketWatch. The problem, Green says, is that passive flows of retirement savings into market indexes like the S&P 500 means that billions of dollars every week flow into the market in a manner that is totally indifferent to the fundamentals of the underlying businesses. Because the S&P 500 is weighted by market capitalization, that means savers are not just blindly buying that collection of stocks, but are doing so in proportion to how much money has already flowed into those names, leading to a situation where just five stocks account for a record 23% of the entire market. These one-way bets increase correlation between stocks on the index and reduce the advantages that can be gained from thoughtful stock picking, creating a snowball effect of ever greater interest in passive vehicles.

Green argues that as baby boomers continue to age out of the workforce and stop adding new money to 401(k)s, it could create a liquidity crisis wherein there are few buyers for what new retirees are selling. “Changes will be made, but it will require a crisis,” Green said. “Increasingly market participants sense that something is off, but to make a significant regulatory change that would change in the investment patterns, the product availability and the fees being charged — it’s really hard to make that change.” Others argue that while the SEC and other regulators should be watching to understand the systemic implications of these trends, they should also keep in mind the benefits that low-fee index investing have brought the American public. “Index funds are very inexpensive, and say what you want about the industry, but at the end of the day they deliver access to the most robust growing markets in history,” for miniscule fees, said former SEC Commissioner Jackson “We’ve given access to the market that millions of people wouldn’t have had thirty years ago.

That’s an enormous achievement, but what we haven’t done is grapple with the consequences.” .