Market Structure Key Priority for SEC Investor Advocate

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By Phyllis Diamond

Jan. 5 — Securities and Exchange Commission Investor Advocate Rick Fleming won't “sit idly by” when he sees rule changes like the New York Stock Exchange's recent easing of its listing requirements for early stage companies.

The NYSE rule change, approved Dec. 31 over Fleming's objection (201 SLD 201, 10/19/15), is emblematic of the type of incremental rule change that could have a cumulative, negative impact on investor protection, he told Bloomberg BNA in a Jan. 5 telephone conversation.

Under the new regulations, early stage companies won't have to get shareholder approval for the cash sale of less than 20 percent of their outstanding common stock to related interested parties. The rule change also requires that any sales to related parties be approved by an independent audit committee.

Incremental Changes

Fleming's primary concern with the rule change is what he sees as its heightened potential for self-dealing among corporate insiders. However, he said he wasn't surprised that the commission signed off on the change, given that it approved a similar Nasdaq rule change before he joined the agency. “So I knew what I was asking for might be difficult for them to do.”

Nonetheless, he said, despite the outcome for this particular rule, he will continue to take action when he see changes like this occurring.

Fleming declined to “prejudge” any particular problem. However, he said his office is looking at amendments made by the exchanges to their listing standards, especially since they have become for-profit entities. “I don't want to say that there's problems there yet. But we're certainly focused on it.”

According to Fleming, the NYSE essentially mirrored Nasdaq rule changes already in place. However, he said, Nasdaq is now going in further in proposing to shift responsibility from the shareholders to the audit committee to approve certain changes. “So yes, I think there's more of this coming down the pike.”

Can we expect Fleming to weigh in on the pending Nasdaq proposal? “You can.” In fact, he said, the agency's Investor Advisory Committee will be taking a look at the proposal at its January meeting.

Exchange listing standards, however, aren't the OIA's only concern. Rather, the office is looking at “pretty much anything” being considered under the banner of equity market structure.

“I can't think of much else that's more important to investors than the structure of the markets and making sure they operate fairly and efficiently,” Fleming said

To contact the reporter on this story: Phyllis Diamond in Washington at

To contact the editor responsible for this story: Susan Jenkins at


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