REPORT ON OBJECTIVES FISCAL YEAR 2018
 

Office of the 

Investor

 Advocate 

U.S. SECURITIES AND EXCHANGE COMMISSION
 
OFFICE OF THE INVESTOR ADVOCATE 

REPORT ON OBJECTIVES
 

FISCAL YEAR 2018 

Section 4(g) of the Securities Exchange Act of 1934 (Exchange Act), 15 U.S.C. § 78d(g), requires 

the Investor Advocate to file two reports per year with the Committee on Banking, Housing, and 

Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives.1

 A Report on Objectives is due no later than June 30 of each year, and its purpose is to 

set forth the objectives of the Investor Advocate for the following fiscal year.2 The instant report 

is the Investor Advocate’s fourth annual Report on Objectives. It contains a summary of the 

Investor Advocate’s primary objectives for Fiscal Year (FY) 2018, beginning October 1, 2017. 

A Report on Activities is due no later than December 31 of each year, and it describes the 

activities of the Investor Advocate during the preceding fiscal year.3

 For FY 2018, the activities 

and accomplishments of the Office will be reported not later than December 31, 2018. 

Disclaimer: Pursuant to Section 4(g)(6)(B)(iii) of the Exchange Act, 15 U.S.C. § 78d(g)(6)(B)(iii), this Report 

is provided directly to Congress without any prior review or comment from the Commission, any Commissioner, any other officer or employee of the Commission, or the Office of Management and Budget. Thus, 

the Report expresses solely the views of the Investor Advocate. It does not necessarily reflect the views of the 

Commission, the Commissioners, or staff of the Commission, and the Commission disclaims responsibility 

for the Report and all analyses, findings, and conclusions contained herein. 

REPORT ON OBJECTIVES: FISCAL YEAR 201 8 | i
CONTENTS
 

MESSAGE FROM THE INVESTOR ADVOCATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
 

OBJECTIVES OF THE INVESTOR ADVOCATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
 

POLICY AGENDA FOR FISCAL YEAR 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
 

Public Company Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
 

Equity Market Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
 

Municipal Market Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
 

Accounting and Auditing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
 

Fiduciary Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
 

OMBUDSMAN’S REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
 

Service by the Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
 

Service Behind the Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
 

Investor Protection and the Retail Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
 

Standards of Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
 

FINRA’s Dispute Resolution Task Force Report . . . . . . . . . . . . . . . . . . . . . . . . . 21
 

Law School Clinic Outreach Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
 

Objectives and Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
 

SUMMARY OF IAC RECOMMENDATIONS AND SEC RESPONSES . . . . . . . . . . . . . . . . 27
 

END NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
 

REPORT ON OBJECTIVES: FISCAL YEAR 201 8 | iii
“As I begin my fourth year as the 

Investor Advocate, I encourage 

Congress to consider giving the 

Commission a respite from statutory 

mandates to engage in rulemaking.” 
MESSAGE FROM THE
 

INVESTOR ADVOCATE
 

As we look ahead to Fiscal Year 2018 and 

consider the objectives for the Office of 

the Investor Advocate, we can predict that 

the volume of our work will continue unabated. 

The Ombudsman and her staff will field hundreds 

of inquiries from individual investors who have 

concerns about the actions of the U.S. Securities 

and Exchange Commission (SEC) or self-regulatory 

organizations (SRO). We will support the work 

of the Investor Advisory Committee and devote 

staff resources to meeting their various needs, 

from arranging issue briefings to making travel 

arrangements. We will continue our efforts to bring 

data-driven investor research into the normal flow 

of the Commission’s rulemaking process, which 

will provide greater insights into the needs of 

today’s investors and help the Commission make 

the best possible choices among competing policy 

options. In addition, we will review hundreds of 

rule proposals from the Commission and SROs 

to examine the impact on investors and, where 

appropriate, recommend changes that will improve 

the rules. 

It is more difficult, however, to predict how much 

time we will devote to specific policy areas during 

the upcoming fiscal year. We are at a transition 

point in SEC leadership, including the recent 

arrival of Chairman Jay Clayton and the anticipated appointment of two additional Commissioners. The policy priorities of these new leaders 

will impact our work as we address the issues of 

interest to them. 

At this point, we anticipate that we will devote 

significant time and attention to five categories of 

issues: public company disclosure, equity market 

structure, municipal market reform, accounting 

and auditing, and fiduciary duty. We expect the 

work of the SEC and SROs to continue in these 

areas, and we will actively engage with policymakers to ensure that the 

interests of investors are 

appropriately considered as 

the work proceeds. These 

matters are included in our 

Policy Agenda for Fiscal 

Year 2018, which is 

described in greater 

detail in this Report. 

This year, as I begin my 

fourth year as the Investor 

Advocate, I encourage Congress to consider giving 

the Commission a respite from statutory mandates 

to engage in rulemaking. During my tenure, the 

rulemaking agenda of the Commission has been 

consumed largely by mandates, first from the 

Dodd-Frank Act and later from the JOBS Act and 

FAST Act. From my point of view, the Commission 

could use some time to get back to basics and 

refresh some of the rules that have gone too long 

without updates. Other promising ideas, such as a 

summary prospectus for variable annuities, have 

been around for a long time and appear noncontroversial, but they languish behind other rulemaking 

priorities. In addition, the pace of important 

REPORT ON OBJECTIVES: FISCAL YEAR 201 8 | 1
 

reforms, including improvements to our equity 

market structure, could accelerate if the burden of 

statutory mandates was lifted. 

I also urge Congress to resist the temptation to 

mandate or pressure the SEC to adopt reforms 

where the available evidence is inconclusive. For 

example, this Report describes the mixed evidence 

regarding the reasons for the decline in initial 

public offerings. Under our new leadership, with 

their unique expertise in these matters, the SEC 

should be given the freedom to pursue evidencebased approaches to solve this problem. 

I am pleased to submit this Report on Objectives 

for FY 2018 on behalf of the Office of the Investor 

Advocate, and I would be happy to answer any 

questions from Members of Congress. 

Sincerely, 

Rick A. Fleming 

Investor Advocate 

2 | OFFICE OF THE INVESTOR ADVOCATE 
OBJECTIVES OF THE
 

INVESTOR ADVOCATE
 

As set forth in Exchange Act Section 4(g) 

(4), 15 U.S.C. § 78d(g)(4), the Investor 

Advocate is required to perform the 

following functions: 

(A)	 assist retail investors in resolving significant 

problems such investors may have with the 

Commission or with self-regulatory organizations (SROs); 

(B)	 identify areas in which investors would 

benefit from changes in the regulations of 

the Commission or the rules of SROs; 

(C)	 identify problems that investors have with 

financial service providers and investment 

products; 

(D)	 analyze the potential impact on investors 

of proposed regulations of the Commission 

and rules of SROs; and 

(E)	 to the extent practicable, propose to the 

Commission changes in the regulations or 

orders of the Commission and to Congress 

any legislative, administrative, or personnel 

changes that may be appropriate to mitigate 

problems identified and to promote the 

interests of investors . 

ASSISTING RETAIL INVESTORS 

Exchange Act Section 4(g)(4)(A) directs the Investor 

Advocate to assist retail investors in resolving 

significant problems such investors may have 

with the Commission or with SROs.4 To help 

accomplish that objective, the Investor Advocate 

has appointed an Ombudsman to, among other 

things, act as a liaison between the Commission 

and any retail investor in resolving problems that 

retail investors may have with the Commission 

or with SROs.5

 The Ombudsman is also required 

to “submit a semi-annual report to the Investor 

Advocate that describes the activities and evaluates 

the effectiveness of the Ombudsman during the 

preceding year” (Ombudsman’s Report).6 As 

required by statute, the Ombudsman’s Report is 

included within this Report on Objectives.7 

IDENTIFYING AREAS IN WHICH 

INVESTORS WOULD BENEFIT FROM 

REGULATORY CHANGES 

Exchange Act Section 4(g)(4)(B) requires the 

Investor Advocate to identify areas in which 

investors would benefit from changes in the 

regulations of the Commission or the rules of 

SROs.8 This is a broad mandate that authorizes 

the Investor Advocate to examine the entire 

regulatory scheme, including existing rules and 

regulations, to identify those areas that could 

be improved for the benefit of investors. For 

example, the Investor Advocate may look at 

the rules and regulations governing existing 

equity market structure to determine whether 

any regulatory changes would benefit investors. 

Similarly, the Investor Advocate may review 

current municipal market practices to evaluate 

whether any changes might benefit investors. 

These and similar other concerns are discussed in 

greater detail below in the section entitled Policy 

Agenda for Fiscal Year 2018. 

REPORT ON OBJECTIVES: FISCAL YEAR 201 8 | 3
 

IDENTIFYING PROBLEMS WITH 

FINANCIAL SERVICE PROVIDERS AND 

INVESTMENT PRODUCTS 

Exchange Act Section 4(g)(4)(C) requires the 

Investor Advocate to identify problems that 

investors have with financial service providers 

and investment products.9 The Investor 

Advocate continues to monitor investor inquiries 

and complaints, SEC and SRO staff reports, 

enforcement actions, and other data to determine 

which financial service providers and investment 

products may be problematic. As required by 

Exchange Act Section 4(g)(6), these problems will 

be described in the Reports on Activities to be filed 

in December of each year. 

ANALYZING THE POTENTIAL IMPACT 

ON INVESTORS OF PROPOSED RULES 

AND REGULATIONS 

Exchange Act Section 4(g)(4)(D) directs the 

Investor Advocate to analyze the potential impact 

on investors of proposed regulations of the 

Commission and proposed rules of SROs.10 As 

required, in FY 2018, the Office will review all 

significant rulemakings of the Commission and 

SROs, and we will communicate with investors 

and their representatives to determine the potential 

impact of proposed rules. In addition, we will study 

investor behavior and utilize a variety of research 

methods to examine the efficacy of policy proposals. 

PROPOSING APPROPRIATE 

CHANGES TO THE COMMISSION 

AND TO CONGRESS 

Exchange Act Section 4(g)(4)(E) provides that, 

to the extent practicable, the Investor Advocate 

may propose to the Commission changes in the 

regulations or orders of the Commission and 

to Congress any legislative, administrative, or 

personnel changes that may be appropriate to 

mitigate problems identified and to promote the 

interests of investors.11 As we study the issues in 

our Policy Agenda for Fiscal Year 2018, as set forth 

below, we will likely make recommendations to the 

Commission and Congress for changes that will 

mitigate problems encountered by investors. 

SUPPORTING THE INVESTOR 

ADVISORY COMMITTEE 

Exchange Act Section 39 establishes the 

Investor Advisory Committee (IAC or 

Committee).12 As discussed in greater detail 

below in the section entitled Summary of IAC 

Recommendations and SEC Responses, the 

purpose of the Committee is to advise and consult 

with the Commission on regulatory priorities, 

issues impacting investors, initiatives to protect 

investors, and related matters. The Investor 

Advocate is a member of the IAC,13 and the Office 

will continue to provide staff and operational 

support to the IAC during FY 2018. 

4 | OFFICE OF THE INVESTOR ADVOCATE 
POLICY AGENDA FOR
 

FISCAL YEAR 2018
 

As described above, the statutory mandate 

for the Office of the Investor Advocate 

is broad, and much of our time is consumed with the review of rulemakings that flow 

through the Commission and SROs. We monitor 

all rulemakings, but we prioritize certain issues 

so that we can develop expertise in those areas 

and maximize our impact for investors with the 

resources we have available. After discussions with 

numerous knowledgeable parties both inside and 

outside the Commission, and after due consideration, the Investor Advocate has determined that 

the Office will focus on the following issues during 

FY 2018: 

§	Public Company Disclosure 

§	Equity Market Structure 

§	Municipal Market Reform 

§	Accounting and Auditing 

§	Fiduciary Duty 

Although other issues may arise that will require 

the attention of the Office, the foregoing issues will 

remain on our policy agenda. 

PUBLIC COMPANY DISCLOSURE 

As described in our prior reports, the Commission 

has undertaken a comprehensive Disclosure Effectiveness initiative to review and modernize public 

company reporting requirements. The disclosure 

rules govern the information that is communicated 

in registration statements, routine periodic reports, 

and proxy statements. 

We anticipate that the Disclosure Effectiveness 

initiative will continue under the Commission’s 

new leadership. We will seek opportunities to 

contribute to the updating of the disclosure rules 

while working to maintain the disclosure of information that is important for investment decisionmaking and shareholder voting. 

The Phenomenon of Fewer 

Initial Public Offerings 

Much has been written about the decline in initial 

public offerings (IPOs) in recent years. The number 

of IPOs in the U.S. has fallen from an annual 

average of 310 during 1980–2000 to an average 

of 108 during the 2001–2016 period.14 The 

drop-off has been especially pronounced among 

smaller companies, receding from an average 

of 165 IPOs per year during the 1980–2000 

period to an average of 28 IPOs per year during 

2001–2012.15 This downward trend has occurred 

despite growth in the nation’s real gross domestic 

product, which has more than doubled from the 

1980s to the present.16 

The disclosure requirements for public companies 

are often singled out as a major cause of the 

decrease in IPOs, as commentators suggest that the 

disclosure obligations are overly burdensome and 

create a strong disincentive to go public.17 Congressional directives in the Jumpstart Our Business 

Startups (JOBS) Act of 2012 and the Fixing Our 

Surface Transportation (FAST) Act of 2014 reflect 

this concern.18 However, recent academic studies 

REPORT ON OBJECTIVES: FISCAL YEAR 201 8 | 5
 

demonstrate that it is difficult to establish any 

causal connection between disclosure mandates 

and IPO activity. In a 2016 paper, for example, 

Christian Leuz and Peter Wysocki surveyed the 

economic literature on the consequences of capital 

markets regulation, drawing on U.S. and international evidence.19 They found that the reported 

evidence on the effects of Regulation FD and the 

Sarbanes-Oxley Act, for instance, was “often quite 

mixed and at times even conflicting,” and also 

confounded by difficulties inherent in isolating and 

measuring regulatory effects.20 

In contrast, mounting evidence suggests that there 

are other, more significant causes for the downturn 

in IPOs. For example, in their 2016 paper, Robert 

P. Bartlett III, Paul Rose, and Steven Davidoff 

Solomon point to a decreasing demand for shares 

of smaller public companies. They posit that the 

increase in assets under management among the 

largest mutual funds in the 1990s induced portfolio 

managers to take larger investment positions and 

cease pursuing companies with smaller market 

capitalizations, particularly when market events 

in 1998 focused attention on liquidity risk within 

fund portfolios.21 They found that after 1998, the 

largest quartile of equity mutual funds (a group 

that collectively controls more than 90 percent 

of mutual fund assets) significantly reduced their 

investments in small IPOs and demonstrated a 

decisive shift toward purchasing larger, more 

liquid IPOs.22 

Our ongoing outreach to investors (discussed 

below) supports the view that, in general, institutional investors who engage in active management 

seem to have limited interest in shares of micro- or 

small-cap public companies. We understand that 

this is largely due to liquidity concerns,23 meaning 

that it may be difficult to conduct trades of institutional size because there may be a lack of buyers 

or sellers on the other side of such trades. In that 

environment, if a trade can be accomplished at 

all, it may significantly impact the price of the 

security in question. Furthermore, there are certain 

regulatory barriers that prevent funds from holding 

large positions in small companies,24 and it may not 

be economical to track and analyze numerous small 

companies in which the asset manager would hold 

small positions. The scaled-back disclosure requirements for smaller public companies may also make 

them less attractive to sophisticated institutions that 

carefully scrutinize the data.25 

The impact of this lack of institutional investor 

demand for smaller companies appears to have 

grown more acute as the market has become 

more dominated by institutional investors. 

Overall, the proportion of equities directly owned 

by individuals has decreased in recent years, as 

investors have chosen to allocate their savings 

into mutual funds and other institutional accounts 

instead. In 1976, individuals directly owned 50 

percent of the equities in the U.S. stock markets, 

but this has fallen to 21.5 percent in 2016.26 

Conversely, institutions now hold the majority of 

U.S. stocks, up from less than 20 percent in 1976.27 

Recent research by Elisabeth de Fontenay suggests 

that while the evidence is mixed regarding whether 

the cost of being a public company has contributed 

to a decline in IPOs, the evidence is more definitive 

that the benefits of being a public company have 

decreased, as capital has become more readily 

available through private markets.28 According to 

Professor de Fontenay, companies were previously 

restricted from raising capital from the general 

public unless they agreed to disclose substantial 

amounts of information, but that paradigm has 

shifted as restrictions on capital raising and trading 

in private markets have been repeatedly loosened 

over the last three decades.29 Between 2009 and 

2014, while public capital-raising hovered around 

$250 billion per year, private capital-raising 

6 | OFFICE OF THE INVESTOR ADVOCATE 
increased from about $700 billion in 2008 to 

over $1.25 trillion in 2014.30 Professor de 

Fontenay observes: 

[W]hile critics blame the increase in
 

regulation for the decline of public
 

equity, the ongoing deregulation of
 

private capital-raising arguably played
 

the greater role. That is, even if public
 

company disclosure requirements had
 

remained constant over the last three
 

decades, there would likely still be a
 

dearth of public companies today, due
 

to the increasing ease of raising capital
 

privately.
 

In a seminal paper published in 2013, Xiaohui 

Gao, Jay R. Ritter, and Zhongyan Zhu argue that 

young firms are more likely to merge with larger 

firms than go public, and that this trend may be the 

best explanation for the decline in small-company 

IPO activity.31 The authors point out that over 

the last few decades, growing big fast—including 

through mergers and acquisitions—has emerged 

as a dominant business strategy compared to the 

alternative of remaining independent and focusing 

on organic growth.32 

In our view, it is important to understand as 

accurately as possible the causes of the decline 

in IPOs so that effective solutions can be found. 

During FY 2018, we will continue to engage with a 

variety of market participants to better understand 

the dynamics of the public and private markets. In 

particular, we will study the demand of institutional 

investors for smaller public company shares. We 

will consider potential reforms that could bolster 

the public trading of those shares and, in turn, 

help to make the public markets more attractive 

for smaller companies that might not otherwise 

consider an IPO. 

Continuing Investor Outreach 

Over the last several months, we have been 

conducting outreach to investors in an effort 

to gather additional input for the Disclosure 

Effectiveness review project. We have met with 

individual investors and a variety of professionals 

who make investment and voting decisions on 

behalf of mutual funds, hedge funds, and pension 

funds. We have explored their various research 

methods and analytical processes to understand 

how these investors consume information that 

public companies are required to disclose. Our goal 

is to identify ways to make this information more 

accessible and useful for investors, and these efforts 

will continue into FY 2018. 

In addition to exploring investor views regarding 

public company disclosure requirements, our 

outreach initiative provides a mechanism for us 

to receive valuable feedback from investors on 

other matters. For instance, one common theme 

that has arisen is investors’ concern that antitrust 

policy may be impeding the ability of investors to 

work together to pursue market-based solutions. 

For example, it may be difficult to standardize 

the disclosure of fees that are borne by limited 

partners in private equity funds, or to develop 

standardized terms or best practices for the trading 

of fixed-income securities. During FY 2018, we will 

study these and other issues that arise as a result 

of our outreach to investors, and we will serve as a 

conduit to bring investor concerns to the attention 

of the Commission. 

EQUITY MARKET STRUCTURE 

As noted in our prior Reports on Objectives, the 

evolution of technologies for generating, routing, 

and executing orders has enhanced the speed, 

capacity, and sophistication of the trading functions 

that are available to market participants.33 Trading 

centers are offering a wide range of services 

REPORT ON OBJECTIVES: FISCAL YEAR 201 8 | 7
 

designed to attract different types of market participants with varying trading needs.34 In addition, 

regulatory actions have contributed to changes 

in equity market structure, e.g., Regulation NMS 

(adopted in 2005),35 Regulation ATS (adopted in 

1998),36 the Order Handling Rules (adopted in 

1996),37 and certain enforcement actions. These 

changes have resulted in a secondary trading 

market for U.S.-listed equities that is dispersed and 

complex, and the Commission has been engaged 

in a multi-year effort to improve the ecosystem for 

modern trading.38 

For instance, in November 2015, the Commission 

proposed amending Regulation ATS to enhance 

the operational transparency of alternative 

trading system (ATS) venues that trade listed 

equity securities.39 Greater information about the 

operation of these venues could allow sophisticated 

investors to better compare the trading venues and 

determine which venues and order routing products 

meet their trading needs. In addition, in July 2016, 

the Commission proposed rules that, for the first 

time, would require broker-dealers to disclose the 

handling of institutional orders to customers under 

existing Rule 606 of Regulation NMS.40 This could 

provide certain customers with better information 

to evaluate the quality of execution for the orders 

they place with their brokers.41 

As required by our statutory mandate, our Office 

has evaluated the potential impact of these 

proposals on investors. In September 2016, we 

submitted a comment letter to the Commission in 

support of the proposed amendments to Regulation 

ATS.42 In our letter, we suggested a modest 

expansion of certain aspects of the proposal in 

order to enhance the operational transparency of 

venues that trade fixed-income securities, including 

those that solely trade government securities.43 We 

will continue to advocate for greater transparency 

in FY 2018 and encourage the Commission to 

adopt a final rule in the near future. We also will 

encourage the Commission to move forward with 

the enhancements to Rule 606. 

In addition to these ongoing rulemakings, the 

Commission’s Equity Market Structure Advisory 

Committee (EMSAC), formed in early 2015, met 

several times over the last two years to discuss and 

debate the structure and operations of the U.S. 

equities market.44 Under its charter, the EMSAC 

provides advice and recommendations to the 

Commission specifically related to equity market 

structure issues.45 Currently, the EMSAC is considering various matters concerning self-regulation, 

market quality, and customer issues. 

The EMSAC also has examined the impact of the 

payment model known as “maker-taker” that 

originated with electronic trading venues in the late 

1990s.46 As detailed in a recent Commission staff 

white paper, those early alternatives to registered 

exchanges competed by, among other things, 

charging low fees while offering fast and fully 

automated trading.47 Paying rebates for trading on 

a venue provided an additional incentive for traders 

to use the venue—it was additional income beyond 

the spread between the bid and offer prices.48 In 

part enshrined by Rule 610 of Regulation NMS, 

which sets a maximum access fee cap for “takers” 

on equity exchanges, this maker-taker fee model 

has been the subject of debate over the effects it 

may have on market structure, broker routing 

practices, and investor interests.49 Some believe 

the maker-taker model is a competitive tool for 

exchanges and may, directly or indirectly, provide 

better prices for investors. Others believe that it 

exacerbates conflicts of interest for brokers who 

have a legal duty to seek best execution of their 

customers’ orders, contributes to market fragmentation and market complexity through the proliferation of new exchange order types, and undermines 

price transparency.50 

On July 8, 2016, the EMSAC recommended 

that the Commission propose a pilot program to 

adjust the existing access fee cap under Regulation 

NMS Rule 610. This would give the Commission 

the ability to evaluate the impact of maker-taker 

access fees on equity exchanges.51 In the coming 

8 | OFFICE OF THE INVESTOR ADVOCATE 
months, our Office will encourage the Commission 

to formally propose a pilot program of this 

nature, and we will carefully consider whether 

the proposed elements of the pilot program will 

provide the Commission with the most useful data 

for evaluating potential equity market structure 

reforms. Ultimately, we will consider whether 

lowering these fees and rebates on a permanent 

basis will improve market quality for investors. 

In addition to monitoring and evaluating 

rulemaking by the Commission and recommendations of the EMSAC during FY 2018, we will 

continue to examine the hundreds of rule proposals 

that are filed with the Commission by the SROs. 

Typically, a number of these filings involve market 

structure issues that impact investors. Where 

appropriate, we will make formal recommendations or utilize the comment process to ensure that 

the needs of investors are properly considered by 

the SROs and the Commission. 

MUNICIPAL MARKET REFORM 

According to Federal Reserve Board estimates, 

the value of outstanding municipal bonds at the 

end of the fourth quarter of 2016 was $3.83 

trillion.52 Approximately 43 percent of outstanding 

municipal bonds were held directly by individual 

investors as of December 31, 2016, and another 24 

percent were owned indirectly by retail investors 

through mutual funds, money market funds, or 

closed end funds and exchange-traded funds.53 

After a recent downward trend in the trading 

of municipal securities, the importance of this 

market to American households appears to be 

increasing again. In its 2016 Fact Book, the 

Municipal Securities Rulemaking Board (MSRB) 

observed that the par dollar amount of customer 

transactions54 in municipal securities grew in 2016 

following a period of steady decreases between 

2011 and 2015.55 In 2016, municipal securities 

trading volume increased approximately 30 percent 

over 2015, halting an average decline of 9 percent 

annually between 2012 and 2015.56 Transactions of 

$100,000 or less accounted for approximately 80 

percent of the total number of municipal securities 

trades in 2016.57 

These statistics show that individual investors 

continue to utilize municipal securities as a part 

of their investment and retirement strategies. The 

municipal securities market is also a valuable 

source of funding for state and local projects that 

affect residents’ quality of life in their communities. 

Given its importance to average Americans, the 

Office of the Investor Advocate has highlighted 

municipal market reform as part of our policy 

agenda in fiscal years 2015, 2016, and 2017,58 and 

we will continue this focus in FY 2018. 

Most recently, we reviewed two specific proposals 

by the MSRB and the Commission. In January 

2017, the MSRB filed a proposal with the 

Commission to create a new exception to the 

existing prohibition against transactions that are 

below the minimum stated denomination for the 

particular bond. In short, the proposal would 

permit a dealer to sell a below-minimum denomination position to one or more customers who 

had a position in the issue and any remainder to 

a maximum of one customer who did not have a 

position in the issue.59 

During the MSRB’s April 2017 meeting, its Board 

of Directors agreed to withdraw this proposal in 

order to give the MSRB more time to engage in 

“meaningful outreach with stakeholders and obtain 

additional information.”60 To the extent appropriate, the MSRB hopes to reach greater consensus 

on any future amendments related to trading below 

the minimum denomination.61 

In March 2017, the Commission proposed an 

amendment to Exchange Act Rule 15c2-12.62 This 

proposal would amend the list of event notices for 

which a broker, dealer, or municipal securities dealer 

is expected to receive assurances of disclosure by an 

issuer or obligated person.63 Among other things, it 

would encourage the disclosure of material financial 

REPORT ON OBJECTIVES: FISCAL YEAR 201 8 | 9
 

obligations or defaults of an issuer that may reflect 

financial difficulties.64 

In FY 2018, the Office of the Investor Advocate 

will follow these developments and provide our 

recommendations as appropriate. In addition, 

we will continue to advocate for improved transparency and liquidity in the municipal securities 

market by encouraging timely, useful disclosures 

for investors and market participants, and we 

anticipate supporting appropriate enhancements 

to the MSRB’s Electronic Municipal Market 

Access website. 

As part of our ongoing duties, we will also carefully 

monitor and analyze all additional amendments 

and rulemakings related to municipal securities. 

We will continue to engage in discussions and 

work with Commission staff and relevant SROs 

to encourage municipal securities market reforms 

designed to benefit investors. 

ACCOUNTING AND AUDITING 

High-quality financial reporting is critically 

important to investors in their investment and 

voting decisions; therefore, it is important for the 

Office of the Investor Advocate to track accounting 

and auditing issues, represent investors in the 

policymaking process, and encourage investors to 

express their views. 

In the upcoming fiscal year, we will continue 

to monitor a variety of issues related to accounting 

and auditing, including the Financial Accounting Standards Board’s (FASB) approach to 

materiality, the overuse of non-GAAP financial 

measures, and internal control over financial 

reporting. 

Materiality 

In September 2015, FASB issued a pair of 

proposals that would, among other things, refer 

to “materiality” as a legal concept.65 These 

proposals have been criticized by investors 

and other stakeholders for their lack of useful 

guidance.66 To better understand these concerns, 

FASB held a roundtable discussion of the proposals 

on March 17, 2017, which generated a thoughtful 

and substantive discussion among informed 

investors and others with a diversity of viewpoints. 

In the coming months, we will communicate 

our views to FASB in an effort to suggest a 

constructive path forward, and we will continue 

to monitor the progress of these two proposals. 

Overuse of Non-GAAP Measures 

In our outreach to investors, several have indicated 

that they find value in certain non-GAAP financial 

measures (NGFM) and key operating metrics.67 

However, they have also expressed concern 

over measures that they find problematic, if not 

misleading. Among other things, investors pointed 

to NGFMs that are not uniform across companies 

or are used inconsistently over time by the same 

company. 

For the past two years, top SEC officials have been 

calling attention to troubling practices involving 

NGFMs and, more recently, key operating 

metrics.68 The heightened focus appears to be 

having a positive effect—even in the absence of 

formal rulemaking—with substantial progress seen 

in the way companies have addressed problematic 

practices.69 Sustained progress will require effective 

company policies, controls, and procedures, as 

well as the diligence and understanding of audit 

committees.70 Continued oversight by Commission 

staff will also play an important role, and we will 

continue to urge our colleagues to remain vigilant 

in this area. 

Internal Control over Financial Reporting 

Effective internal control over financial reporting 

(ICFR) is essential for providing high-quality information for investors. The management of a public 

company is required to assess the effectiveness of 

the company’s ICFR. For companies over a certain 

size, the company’s independent auditor is also 

required to attest to, and report on, management’s 

assessment of its ICFR.71 

10 | OFFICE OF THE INVESTOR ADVOCATE 
For at least two reasons, ICFR is likely to be an 

important issue in the coming year. First, companies 

will need to ensure that their internal controls 

take account of any changes introduced with the 

implementation of significant new GAAP standards 

on revenue recognition and other topics. Second, 

there have been suggestions to expand the class of 

small issuers that are exempt from the requirements 

of auditor attestation. 

In our view, the independent audit of internal 

controls provides important protections to 

investors and the companies in which they invest. 

It strengthens internal controls, prevents fraud, 

promotes confidence in U.S. capital markets, and 

helps lower the cost of capital. An erosion of 

auditor attestation requirements advanced in the 

name of capital formation could have the opposite 

effect, and we will work to guard against this 

outcome. 

FIDUCIARY DUTY 

In our Report on Objectives for FY 2016, we 

described the confusion that arises from the 

different standards of care for financial professionals who provide advice to investors.72 The 

distinction is that broker-dealers are generally 

subject to a suitability standard while investment 

advisers are subject to a fiduciary standard. 

Since that Report was issued, the U.S. Department 

of Labor has adopted a regulation that would, 

among other things, apply the fiduciary standard 

to any person who, for compensation, provides 

investment advice or recommendations to various 

kinds of retirement plans.73 Many have called 

upon the SEC to engage in a similar rulemaking to 

implement a fiduciary duty for broker-dealers.74 On 

June 1, 2017, SEC Chairman Jay Clayton issued 

a public statement calling for public comments 

from retail investors and other interested parties on 

standards of conduct for investment advisers and 

broker-dealers.75 

We have previously described the challenges the 

Commission will face in promulgating a fiduciary 

standard for broker-dealers. Section 913 of the 

Dodd-Frank Wall Street Reform and Consumer 

Protection Act of 2010 (Dodd-Frank Act) contains 

what appear to be conflicting mandates: to develop 

a standard for broker-dealers no less stringent than 

the existing standard for investment advisers while 

accommodating sales-based compensation and 

the sale of proprietary products or limited product 

lines. Section 913 also prohibits the Commission 

from requiring a broker-dealer to have a continuing 

duty of care or loyalty to the customer after 

providing personalized investment advice.76 

While we believe that a bona fide fiduciary duty 

for broker-dealers would benefit investors, we are 

concerned that the conflicting mandates could lead 

to harmful outcomes for investors in at least two 

ways. First, such a rule could dilute the existing 

standard for investment advisers in a misguided 

attempt to adopt a “harmonized” standard for 

broker-dealers. Second, even though this effort 

may be intended to reduce investor confusion 

surrounding the differing standards of care for 

investment advisers and broker-dealers, a poorlydesigned rule could cause even greater confusion 

by purporting to give investors the protection 

of a “fiduciary duty” that would, in fact, be less 

stringent than the traditional fiduciary duty that 

applies in other relationships of trust. In our view, 

if the Commission proceeds with promulgating a 

fiduciary rule for broker-dealers, it must adopt a 

meaningful standard by drawing the Section 913 

exceptions as narrowly as possible. 

During FY 2018, we will continue to monitor the 

developments with the Department of Labor’s 

fiduciary rule and consider its impact on investors. 

We also will encourage the Commission to pursue 

a thoughtful approach to this complex issue so 

that the SEC can create stronger protections for 

investors while avoiding unintended consequences. 

REPORT ON OBJECTIVES: FISCAL YEAR 201 8 | 11
12 | OFFICE OF THE INVESTOR ADVOCATE 
OMBUDSMAN’S REPORT
 

Under Exchange Act Section 4(g)(8), 15 

U.S.C. § 78d(g)(8), the Ombudsman 

shall: (i) act as a liaison between the 

Commission and any retail investor in resolving 

problems that retail investors may have with the 

Commission or with self-regulatory organizations; 

(ii) review and make recommendations regarding 

policies and procedures to encourage persons 

to present questions to the Investor Advocate 

regarding compliance with the securities laws; 

and (iii) establish safeguards to maintain the confidentiality of communications between investors 

and the Ombudsman.77 

The Ombudsman is also required to “submit a 

semi-annual report to the Investor Advocate that 

describes the activities and evaluates the effectiveness of the Ombudsman during the preceding 

year” (Ombudsman’s Report).78 The Ombudsman’s 

Report must be included in the semi-annual reports 

submitted by the Investor Advocate to Congress. 

To maintain reporting continuity, the Ombudsman’s Report included in the Investor Advocate’s 

June 30 Report on Objectives will describe the 

Ombudsman’s activities during the first six months 

of the current fiscal year and provide the Ombudsman’s objectives and outlook for the following full 

fiscal year. The Ombudsman’s Report included in 

the Investor Advocate’s December 31 Report on 

Activities will provide a look back on the Ombudsman’s activities during the full preceding fiscal year. 

Accordingly, this Ombudsman’s Report provides
 

a look back at the Ombudsman’s activities for
 

the six-month period of October 1, 2016 through 

March 31, 2017 (Reporting Period), and discusses 

the Ombudsman’s objectives and outlook for FY 

2018, beginning October 1, 2017. 

SERVICE BY THE NUMBERS 

The Ombudsman79 assists retail investors and other 

individuals with concerns or complaints about the 

SEC (or an SRO the SEC oversees) in a variety of 

ways, including, but not 

limited to: 

§	Listening to inquiries, 

concerns, complaints, 

and related issues; 

§	Helping persons 

explore available SEC 

options and resources; 

§	Clarifying certain SEC 

decisions, policies, and 

practices; 

§	Taking objective measures to informally resolve 

matters that fall outside of the established 

resolution channels and procedures at the 

SEC; and, 

§	Acting as an alternate channel of communication 

between retail investors and the SEC. 

In practice, individuals often seek the Ombudsman’s assistance as an initial point of contact 

to resolve their inquiries or as a subsequent or 

ongoing point of contact when they are dissatisfied 

with the outcome, rate of progress, or resolution. 

REPORT ON OBJECTIVES: FISCAL YEAR 201 8 | 13
 

 

To respond to inquiries effectively and efficiently, 

the Ombudsman monitors the volume of inquiries 

and the staff resources devoted to addressing the 

particular concerns. The Ombudsman tracks: 

§	All inquiries received by, or referred to, 

the Ombudsman; 

§	All related correspondence and communications 

to and from Ombudsman staff; 

§	Staff engagement and resources utilized to 

respond to inquiries; and, 

§	Inquiry status from receipt to referral, 

resolution, or closure. 

The Ombudsman maintains inquiry data records 

to: (i) identify and respond to problems retail 

investors have with the Commission or with 

SROs; (ii) track and analyze inquiry volume; 

(iii) categorize and report data, trends, and 

concerns; and (iv) provide data-driven support for 

recommendations presented by the Ombudsman to 

the Investor Advocate for review and consideration. 

Inquiry volume is counted in terms of matters 

and contacts. The initial contact—a new, 

discrete inquiry received by, or referred to, the 

Ombudsman—is the contact that establishes 

the matter. When a matter is established, the 

Ombudsman reviews the facts, circumstances, and 

concerns raised, and assesses the staff engagement 

and resources that may be required to respond to, 

refer, or resolve the matter. 

The matter established by the initial contact may 

generate subsequent contacts—related inquiries and 

communications to or from the Ombudsman staff 

deriving from the matter. Subsequent contacts often 

require further staff attention to answer additional 

questions, explain or clarify proposed resolution 

options, or respond to challenging or persistent 

communications from an investor. This system of 

counting matters and contacts helps the Ombudsman 

quickly assess volume and resource issues related to 

each matter. 

Data Across Primary Issue Categories 

One of the most important ways the Ombudsman 

tracks and evaluates matter and contact data is by 

the primary issue identified. During the first full 

year in the role, the Ombudsman meticulously 

examined the substance of each matter and contact, 

and developed a set of primary issue categories to 

appropriately group and describe the range 

of concerns. 

During the Reporting Period, retail investors, 

industry professionals, concerned citizens, and 

other interested persons contacted the Ombudsman 

for assistance on 114 matters covering 11 primary 

issue categories. The chart that follows displays 

the distribution of matters handled during the 

Reporting Period by primary issue category. 

5% 4%

20%

11%

10%

9%

9%

8%

6%

6%

12%

SEC Questions / Complaints (23)
 

Allegations of Securities Law Violations / Fraud (14)
 

Investment Products / Retirement Accounts (13)
 

Securities Laws / Rules / Regulations / Procedures (11)
 

Non-SEC / Other Matters (10)
 

SRO Rules / Procedures (10)
 

Atypical Matters (9)
 

Company Disclosures and Information (7)
 

SEC Investigations / Litigation / Enforcement Actions (7)
 

FINRA Arbitration / Rules / Procedures (6)
 

Securities Ownership (4)
 

14 | OFFICE OF THE INVESTOR ADVOCATE 
3%

During the Reporting Period, these 114 matters 

generated 616 subsequent contacts. The chart that 

follows displays the distribution of the 730 total 

contacts by primary issue category. 

1%

33%

16%

9%

8%

5%

4%

3%

17%

3%

1%

SEC Investigations / Litigation / Enforcement Actions (239) 

Securities Laws / Rules / Regulations / Procedures (121) 

SEC Questions / Complaints (118) 

Company Disclosures and Information (66) 

Investment Products / Retirement Accounts (58) 

FINRA Arbitration / Rules / Procedures (35) 

Allegations of Securities Law Violations / Fraud (31) 

SRO Rules / Procedures (22) 

Non-SEC / Other Matters (19)
 

Atypical Matters (11)
 

Securities Ownership (10)
 

Data Analysis and Reporting: The 

Ombudsman Matter Management System 

During the Reporting Period, the Ombudsman 

continued to work extensively with the SEC’s 

Office of Information Technology (OIT) and a 

technology contractor to refine data and functionality requirements for the Ombudsman Matter 

Management System (OMMS), an electronic 

platform for tracking, analyzing, and reporting 

matter and contact information while ensuring 

all necessary data management, confidentiality, 

and reporting requirements are met. Notably, the 

Ombudsman staff used the OMMS back office 

functionality to track, analyze, and report all 

matter and contact data during this Reporting 

Period. The staff also adapted the manual recordkeeping systems to migrate matter and contact data 

from prior fiscal years into OMMS, and developed 

workarounds as necessary to record the manual 

matter and contact data in OMMS-compatible 

categories and formats. This allowed for a seamless 

migration of matter and contact data to the 

OMMS platform. 

This period of internal OMMS use also allowed 

the Ombudsman to work side-by-side with OIT 

staff and the technology contractor to test data 

recording and retrieval scenarios, track issues and 

run reports, and troubleshoot anomalies with both 

the external facing OMMS matter submission 

form (the OMMS Form) and the internal OMMS 

platform. OIT and the technology contractor made 

significant progress adjusting design elements on 

the OMMS Form, including making the OMMS 

Form more instructive and user-friendly, ensuring 

the OMMS Form is compatible for use on mobile 

devices, and creating custom reporting and data 

management capabilities responsive to our needs. 

The Ombudsman anticipates making the OMMS 

Form available to the public during the last quarter 

of this fiscal year, which will complete the transition 

from a manual intake, tracking, and reporting 

process to a fully-functional, customized, electronic 

matter management platform. 

How the Numbers Inform Our Efforts 

The Ombudsman tracks matter and contact data to 

maintain a comprehensive view of the allocation of 

staff resources, and to identify matters and contacts 

that significantly alter workflow volumes, call 

for the realignment of Ombudsman staff assignments, or require added staff support to manage 

effectively. Administratively, the data helps the 

REPORT ON OBJECTIVES: FISCAL YEAR 201 8 | 15
 

Ombudsman evaluate the work required to reach 

closure or resolution and make strategic decisions 

to ensure that people seeking the Ombudsman’s 

assistance receive an appropriate level of personalized service and staff resources. The data also 

informs resource allocation considerations related 

to proposed program development, training, and 

outreach efforts. 

Programmatically, tracking the distribution 

of matters and contacts across primary issue 

categories enables the Ombudsman to identify 

potential areas of concern or interest. For 

example, agency leadership changes; news 

reports about certain market participants or 

investment products; and press releases relating 

to enforcement actions, whistleblower awards, 

and Fair Funds often create noticeable spikes in 

matter and contact volume in particular categories. 

Tracking this data enables the Ombudsman to 

act as an early warning system to alert agency 

leaders about the number and potential impact 

of particular issues and concerns raised by retail 

investors and others. 

SERVICE BEHIND THE NUMBERS 

While the matter and contact data quantifies the 

volume and categories of inquiries the Ombudsman 

receives, the data does not capture the value 

of the service the Ombudsman provides to the 

investing public. Investors bring their concerns, 

problems, and fears to the Ombudsman with the 

expectation that the Ombudsman can help them 

get to a solution. At times, they resist the Ombudsman’s efforts to engage in a productive dialogue 

and conclude that any outcome, other than the 

particular outcome they want, is untenable and 

unacceptable. Most investors, however, thoughtfully consider the advantages and disadvantages 

of the resolution options the Ombudsman 

presents, and modify their expectations based upon 

the potential outcome each option offers. The 

Ombudsman offers investors a tailored approach 

based on the investor’s particular needs and the 

unique facts and circumstances involved, explaining 

and clarifying the different options to address their 

specific concerns and identifying the steps required 

to initiate each viable option. 

16 | OFFICE OF THE INVESTOR ADVOCATE 
The following examples offer a closer look at how the Ombudsman staff’s time, effort, and commitment 

provide meaningful, personalized service to investors, and illustrate the value of the day-to-day work more 

effectively than the data alone. 

A well-informed, elderly investor contacted the Ombudsman and alleged that a broker took advantage 

of her age and trusting disposition to gain control of and plunder her brokerage account . The investor 

first contacted another SEC office well over a year before contacting the Ombudsman, and asked the 

staff in that office to intervene in the dispute and demand the return of her losses . The staff explained 

that the SEC was not permitted to represent individual investors in private disputes with their brokers 

and that, in this instance, the SEC could only forward the complaint to the firm and ask for a written 

response . The investor objected to the assistance and information provided by SEC staff and for almost 

a year, wrote letters to SEC senior officers and staff complaining about the inadequacy of the SEC’s 

investor protection efforts . 

An individual filed a complaint alleging an accounting fraud scheme involving a large, publicly traded 

company and a broadcasting service provider with whom the individual was locked in a protracted 

subscription billing dispute . The individual repeatedly insisted that the Division of Enforcement 

staff investigate his allegations and demanded to know the investigation’s status . Citing the SEC’s 

confidentiality policies and practices relating to investigations, the Enforcement staff routinely 

declined these demands . When the individual contacted the Ombudsman, he further alleged that the 

SEC was involved in a broad government conspiracy to cover up accounting fraud schemes involving 

publicly traded companies . 

The SEC was contacted to assist a congressional representative’s constituent, an investor 

complaining that a brokerage firm did not answer questions about a certain product to the investor’s 

particular satisfaction . Because the SEC has no authority to force a firm to provide a response that 

satisfies the investor, SEC staff in the appropriate office replied in writing and explained that the 

investor may pursue other remedies by consulting with private counsel . The investor objected to this 

outcome and sent repetitive and harshly critical letters to the SEC Chair, the Ombudsman, and the 

senior staff in the SEC office that initially handled the investor’s request . 

A senior investor was not satisfied with the outcome of a FINRA investigation and asked the 

Ombudsman to review the FINRA investigation record, determine whether the FINRA staff came to the 

correct conclusion about the brokerage firm’s actions, and compel the investor’s preferred outcome . 

The investor argued that the SEC’s investor protection mandate and oversight responsibility of FINRA 

obligated the Ombudsman to intervene informally and require FINRA to take action against the 

brokerage firm . The investor threatened to file formal complaints against specific FINRA management 

and staff if the Ombudsman’s informal assistance did not achieve the investor’s objectives . The investor 

also asked the Ombudsman to contact the brokerage firm informally and require the firm to pay the 

investor to settle the complaint . 

REPORT ON OBJECTIVES: FISCAL YEAR 201 8 | 17
 

The objections and criticisms raised by these 

and other investors reveal that they often rely 

upon incorrect assumptions about the SEC’s 

authority, the staff’s obligations to all investors, 

and the SEC staff’s specific and personal duty to 

the individual investor. In these situations, and 

particularly when investors are unable to recover 

monetary losses, investors are often aggravated 

that the SEC did not respond in a manner 

consistent with their expectations. They then 

bring their complaints about their losses and 

any SEC staff who attempted to address their 

concerns to the Ombudsman. 

When responding to an individual, the Ombudsman thoroughly researches the complaint and 

correspondence history to understand the nature 

of the underlying conflicts and issues involved. 

The Ombudsman often contacts the individual 

personally by telephone and takes considerable 

time to establish rapport, explain why the 

SEC could not act as the investor’s personal 

advocate to recover losses, and discuss alternatives and resources to help resolve disputes. The 

Ombudsman may also provide the individual with 

detailed answers and explanations in writing to 

ensure he or she fully understands the staff’s verbal 

communication, and to offer additional resources. 

Even if these interactions never lead to 

results that satisfy the individuals involved, 

they provide valuable insight into investors’ 

concerns that ultimately may affect our policy 

recommendations or SEC operations. In addition, 

they spark internal discussions about additional 

strategies the Ombudsman staff can apply to 

handle challenging communications with investors. 

By deconstructing the communication challenges 

certain investors present, the staff can identify and 

deploy new methods to move difficult communications in the direction of productive solutions. 

INVESTOR PROTECTION AND 

THE RETAIL INVESTOR 

The SEC’s mission is to “protect investors, 

maintain fair, orderly, and efficient markets, and 

facilitate capital formation.”80 As illustrated by 

the examples on the previous page, retail investors 

who contact the Ombudsman after experiencing 

an unexpected investment loss often assume that 

“protect investors” means the SEC is responsible 

for returning the value the investor lost. Equally 

as often, the Ombudsman must introduce the 

investor to a different understanding of this term. 

At the center of many complaints is a misunderstanding about the relationship between the 

SEC and retail investors, and the SEC’s obligations 

to protect retail investors. Likewise, investors 

often have similar misunderstandings about the 

Ombudsman’s role and obligation to resolve 

investor complaints in a particular manner. 

Investors approaching the Ombudsman from this 

posture generally expect the Ombudsman to act as 

a fact-finder and compel the SEC to do what the 

investor wants. 

Investor Perceptions of Investor Protection 

Each SEC division and office contributes to the 

agency’s mission in different ways. Some of the 

many agency functions that promote investor 

protection include investigations of wrongdoing 

and enforcement actions; the review of rule filings 

from exchanges and SROs; the production of 

papers and publications;81 the detailed review of 

disclosure items and documents “to ensure that 

investors are provided with material information 

in order to make informed investment decisions;”82 

and routine examinations to “protect investors 

. . . through risk-focused strategies” designed to 

improve compliance, prevent fraud, monitor 

risk, and inform policy.83 What results from 

these efforts is a system of investor protection 

arising from the integrity of the capital markets, 

18 | OFFICE OF THE INVESTOR ADVOCATE 
 

the effective enforcement of rules, and the 

availability of “meaningful, accurate, and 

complete” information.84 

The SEC establishes rules and regulations that 

require regulated entities to disclose all material 

information reasonably required for an informed 

investor to decide if an investment, a regulated 

entity, or a regulated individual poses risks that 

investor is unwilling to bear. The SEC’s website 

explains the investor’s assumption of risk as 

follows: 

The world of investing is fascinating 

and complex, and it can be very fruitful. 

But unlike the banking world, where 

deposits are guaranteed by the federal 

government, stocks, bonds and other 

securities can lose value. There are no 

guarantees. That’s why investing is not 

a spectator sport. By far the best way 

for investors to protect the money they 

put into the securities markets is to do 

research and ask questions.85 

While an investor may understand that an 

investment is not guaranteed by the federal 

government, the investor may not understand 

who bears responsibility for the losses that an 

investor suffers due to someone else’s violation 

of the federal securities laws and the related 

consequences that illegal conduct may have 

on the investment’s value. Investors who believe 

they are victims of securities fraud often contact 

the Ombudsman to request or demand some 

form of SEC legal representation or recompense 

because of the “protect investors” language in 

the SEC’s mission statement. In these situations, 

investors frequently assume the purpose of SEC 

investigations and enforcement actions is to 

protect harmed investors by getting their 

money back. 

Ultimately, the federal securities laws were designed 

to balance investor protection against investor 

autonomy, choice, and judgment by creating a 

disclosure-based regulatory regime. The concept 

of disclosure-based regulation assumes that the 

regulator and the investor are both responsible for 

different aspects of investor protection. While the 

SEC’s enforcement goals may at times align with 

the interests of harmed investors, the SEC does not 

pursue investigations and enforcement actions to 

represent an investor’s particular legal interest or to 

recover money a particular investor may have lost. 

Rather, the SEC is tasked with enforcing the federal 

securities laws to serve the broad interests of the 

federal government in maintaining fair, orderly, and 

efficient capital markets. 

The Ombudsman’s Challenge 

The related question we regularly address is: 

What can the Ombudsman do for investors who 

have been harmed by violations of the federal 

securities laws? In appropriate circumstances, 

the Ombudsman may be able to present options 

to investors or foster communications between 

investors and SEC divisions, or offices, or SROs. 

However, the Ombudsman is not authorized to do 

many things that investors request, for example: 

§	Deciding the facts in a dispute that the investor 

has with the Commission or an SRO, or in a 

dispute before an SRO, such as an arbitration or 

mediation; 

§	Intervening on behalf of, or representing the 

interest of, an investor in a formal dispute or 

investigation process; 

§	Providing advice on how the federal securities 

laws may impact their particular investments or 

legal options; or 

§	Changing formal outcomes, including decisions 

about whether to investigate an allegation of 

wrongdoing, settle an enforcement action, or 

create a Fair Fund. 

REPORT ON OBJECTIVES: FISCAL YEAR 201 8 | 19
 

As demonstrated in the previous examples, investor 

communications to the Ombudsman often reflect 

a confusion about the roles played by, and the 

authority provided to, the SEC, the staff of the 

SEC, and the Ombudsman in promoting the 

mission of investor protection. With this in mind, 

the Ombudsman routinely explains to investors 

that they have the ability to protect their interests 

and preserve their legal rights in ways that the 

Ombudsman cannot. For example, an investor can 

file an arbitration or mediation complaint with 

FINRA to address a broker dispute. If the investor 

wants to address these issues outside of FINRA’s 

dispute resolution forum, the investor can hire 

private legal counsel to evaluate and protect the 

investor’s rights. Investors who do not have the 

means to hire legal counsel may qualify for representation through no-cost legal clinics sponsored by 

various law schools. While the Ombudsman staff 

cannot represent the interest of investors in private 

disputes, we do serve these investors by providing 

information that will assist them in making choices 

for themselves. 

STANDARDS OF PRACTICE 

Any retail investor with an issue or concern 

related to the SEC or an SRO subject to SEC 

oversight may contact the Ombudsman. The 

Ombudsman is available to identify existing 

SEC options and resources to address issues 

or concerns, and to explore informal, objective 

steps to address issues or concerns that may 

fall outside of the agency’s existing inquiry 

and complaint processes. Similar to ombudsmen 

at other federal agencies, the SEC Ombudsman 

follows three core standards of practice, which 

are listed below. 

CONFIDENTIALITY IMPARTIALITY INDEPENDENCE 

The Ombudsman has established 

safeguards to protect confidentiality, 

including the use of OMMS, a separate 

email address, dedicated telephone 

and fax lines, and secure file storage . 

The Ombudsman generally treats 

matters as confidential, and takes 

reasonable steps to maintain the 

confidentiality of communications . The 

Ombudsman also attempts to address 

matters without sharing information 

outside of the Ombudsman staff, 

unless given permission to do so . 

However, the Ombudsman may 

need to contact other SEC divisions 

or offices, SROs, entities, and/or 

individuals and share information 

without permission under certain 

circumstances including, but not 

limited to: a threat of imminent risk or 

serious harm; assertions, complaints, 

or information relating to violations 

of the securities laws; allegations of 

government fraud, waste, or abuse; or 

if otherwise required by law . 

The Ombudsman does 

not represent or act as an 

advocate for any individual 

or entity, and does not 

take sides on any issues 

brought to her attention . 

The Ombudsman maintains 

a neutral position, considers 

the interests and concerns 

of all involved parties, and 

works to resolve questions 

and complaints by clarifying 

issues and procedures, 

facilitating discussions, and 

identifying options and 

resources . 

By statute, the Ombudsman 

reports directly to the 

Investor Advocate, who 

reports directly to the 

Chairman of the SEC . 

However, the Office of the 

Investor Advocate and the 

Ombudsman are designed 

to remain somewhat 

independent from the 

rest of the SEC . Through 

the Congressional reports 

filed every six months by 

the Investor Advocate, the 

Ombudsman reports directly 

to Congress without any 

prior review or comment 

by the Commission or other 

Commission staff . 

20 | OFFICE OF THE INVESTOR ADVOCATE 
ACUS Overview of the Core 

Standards of Practice and Common 

Characteristics of Federal Ombudsmen 

In 1990, the Administrative Conference of 

the United States (ACUS) sponsored a report 

entitled Ombudsmen in Federal Agencies: The 

Theory and the Practice. In 2016, ACUS sponsored 

a follow-up study, A Reappraisal – The Nature 

and Value of Ombudsmen in Federal Agencies, 

to examine the current landscape of federal 

ombudsmen, including “who they are, what they 

do, why they do it, how they do it, and the value 

they bring.”86 The study included an insightful 

examination of the core standards of practice 

followed, and the common characteristics shared, 

by federal ombudsmen:87 

§	Most federal ombuds share three core standards 

of practice in some form—independence, 

confidentiality, and impartiality—which are 

considered essential to the ombuds profession.88 

§	The core standards are set forth in the standards 

adopted by the American Bar Association (ABA), 

the International Ombudsman Association (IOA), 

and the United States Ombudsman Association 

(USOA) . . . . These organizations’ standards are 

generally followed, as applicable, and considered 

essential by the ombuds profession, both within 

and outside government.89 

§	Most federal ombuds also share the following 

common characteristics: (1) [o]mbuds do not 

make decisions binding on the agency or 

provide formal rights-based processes for redress; 

(2) they have a commitment to fairness; and 

(3) they provide credible processes for [reviewing] 

issues [meaning, the ombuds have a high degree 

of expertise, training, access, appropriate 

independence, authorization, and resources].90 

The three core standards and these common 

characteristics, taken together, are central to the 

ombuds profession.91 

§	The core standards and common characteristics 

encourage all parties to a dispute or problem to 

work with the ombuds office, especially those 

who are reluctant to approach the government 

with an issue . . . . They encourage constituents 

to explore effective options.92 

§	By creating a safe space, ombuds receive 

unvarnished feedback about an agency’s 

programs and processes. This feedback 

informs the recommendations ombuds make 

to the agency as to how to better serve their . . . 

constituents—a benefit to all taxpayers.93 

§	As the value of the federal ombuds continues to 

be recognized, we expect the profession to grow. 

If the nation is to fully benefit from federal 

ombuds, the unique and complementary 

combination of professional standards and 

characteristics that define the ombuds role and 

differentiate it from other agency functions, 

should be recognized. The standards and 

characteristics . . . provide essential guidance for 

the structure and operation of federal ombuds 

offices necessary to serve the federal government 

and all constituents.94 

FINRA’S DISPUTE RESOLUTION 

TASK FORCE REPORT 

As noted above, the Ombudsman is entrusted 

to serve as a liaison between the Commission 

and any retail investor in resolving problems that 

retail investors may have with the Commission 

or with an SRO such as FINRA.95 In line with 

this responsibility, the Ombudsman regularly 

monitors FINRA’s activities, especially with 

respect to its dispute resolution forum. 

As discussed in the Report on Objectives for 

FY 2017, one aspect of FINRA’s arbitration 

activities the Ombudsman monitors is FINRA’s 

Dispute Resolution Task Force (Task Force). 

FINRA formed the Task Force in July 2014 to 

consider the future of FINRA’s dispute resolution 

REPORT ON OBJECTIVES: FISCAL YEAR 201 8 | 21
 

forum and to provide recommendations to 

FINRA’s National Arbitration and Mediation 

Committee to improve it.96 In December 2015, 

the Task Force issued its Final Report, which 

included 51 recommendations.97 

In February 2017, FINRA released a status report 

on its efforts to implement the Task Force’s 

recommendations.98 At that time, FINRA had 

implemented 35 of the 51 Task Force recommendations.99 Given the number of recommendations, the Ombudsman selected simplified 

arbitration for small claims and the expanded use 

of explained decisions for arbitration awards for 

further discussion in this report based on the types 

of complaints and concerns raised by investors. 

In addition, one Task Force recommendation 

pending consideration by FINRA—funding to 

law school arbitration clinics—aligns with an 

outreach program implemented by our Office and 

is discussed below. 

Simplified Arbitrations for Small Claims 

As noted in the Report on Activities for FY 

2016,100 simplified arbitrations in FINRA’s dispute 

resolution forum are disputes involving small 

claims of $50,000 or less, with one arbitrator 

assigned (rather than a panel of three arbitrators) 

who is selected from the chairperson roster unless 

the parties agree otherwise.101 No arbitration 

hearing is held unless the investor requests one, 

and if not requested, the arbitrator renders 

an award based entirely on the pleadings and 

discovery provided by the parties.102 The goal of 

the simplified arbitration procedure is to make the 

arbitration process faster than full panel arbitrations and less expensive for the parties.103 

The Task Force reviewed simplified arbitrations 

and noted that of the FINRA dispute resolution 

forum claimants, the claimants in these arbitrations are the least satisfied, with a 37 percent 

satisfaction rate for claimant “wins” in all-paper 

cases and a 34 percent rate in hearing cases— 

below the “win” rates for claimants in all-public 

three-arbitrator panels.104 The Task Force hypothesized that simplified arbitration claimants are 

dissatisfied because: (i) many are pro se and may 

have an unrealistic view of the likely outcome of 

arbitration; (ii) claimants may see a significant 

portion of their recovery consumed by fees and 

costs; (iii) since 43 percent of claimants do not 

opt for a hearing, they “give up their ability to 

look the arbitrator in the eye and argue their 

case;” (iv) explained decisions are not available; or 

(v) of the combination of not having an explained 

decision and lack of personal contact with the 

arbitrator.105 

The Task Force speculated that the opportunity to 

be heard may be an important element in a claimant’s satisfaction with the forum.106 Accordingly, 

the Task Force recommended that FINRA Dispute 

Resolution consider adopting an intermediate 

form of adjudication, meaning “more than papers, 

but less than a full hearing,” with the goal of 

permitting the claimant “personal contact” with 

the arbitrator.107 FINRA explained that this type 

of hearing will permit parties the opportunity to 

present their cases over the phone, establish time 

limits for the amount of time each party can speak, 

and be restricted to one day.108 On December 15, 

2016, FINRA announced that the FINRA Board 

of Governors authorized FINRA to file with the 

SEC an amendment to the rule governing simplified 

arbitrations to provide for a new form of simplified 

arbitration.109 

Expanded Use of Explained 

Decisions for Arbitration Awards 

The Task Force made three recommendations with respect to explained decisions: (i) an 

arbitrator should default to writing an explained 

decision unless a party opts-out prior to the Initial 

Pre-Hearing Conference (IPHC); (ii) the brief 

fact-based format should be retained, but with 

the addition of a summary explanation of the 

22 | OFFICE OF THE INVESTOR ADVOCATE 
reasons behind any damage calculation; and 

(iii) FINRA should train chairpersons on how 

to write explained decisions.110 

FINRA chose not to offer a default explained 

decision for the following reasons: 

[F]orum users (including investor and 

industry counsel) expressed reservations about making explained decisions 

the default award type at the forum 

including, among other things, that: 

(1) they put the finality of arbitration 

awards at risk of motions to vacate 

based on the explanations; (2) an opt-out 

provision would be problematic because 

parties that inadvertently fail to opt-out 

would receive an explained decision 

they do not want; (3) arbitrators might 

agree that they want to award damages 

to a party but not agree on the basis 

for the damages; (4) the requirement 

to write an explained decision would 

put added strain on arbitrators and 

might be a deterrent to service; and (5) 

drafting explained decisions could delay 

the issuance of awards.111 

Under FINRA’s current requirement that 

both parties opt-in to request an explained 

decision, very few explained decisions are 

requested. The Task Force believed that this 

mutual opt-in requirement was responsible for 

this result.112 Fortunately, FINRA has taken a 

positive step toward expanding explained 

decisions in its forum—since January 3, 2017, 

FINRA has waived its $400 fee for an explained 

decision.113 This will enable parties to receive an 

explained decision without having to cover the 

honorarium paid to the chairperson, provided 

that the parties can agree to seek an explained 

decision at least 20 days prior to the IPHC.114 In 

the year ahead, the Ombudsman will monitor 

the impact of the FINRA decision to not offer an 

explained decision as the default option available 

to arbitration parties. 

Funding to Law School Arbitration Clinics 

The mission of the FINRA Foundation (the 

Foundation) is to “provide underserved Americans 

with the knowledge, skills and tools necessary for 

financial success throughout life.”115 Consistent 

with this mission, the Foundation has provided 

three-year grants to several law schools for start-up 

funding to establish clinics to provide assistance to 

customers with small claims who are not otherwise 

able to obtain legal assistance.116 The Task Force 

received reports that as a result of the Foundation’s three-year funding policy, some clinics will be 

forced to close.117 The Task Force noted that while 

it is not inclined to second-guess the Foundation’s 

policy of limiting funding for post-grant sustainability, it advocated that continued funding of 

law school clinics would be an appropriate use of 

FINRA fines and penalties.118 

Investor rights clinics present a unique opportunity 

to educate vulnerable retail investors, a service 

consistent with the Foundation’s goal to promote 

a “society characterized by universal financial 

literacy.”119 The information and services provided 

by FINRA’s BrokerCheck120 and Securities Helpline 

for Seniors,121 or through a discussion with a 

registered representative at a broker-dealer firm, are 

vastly different from the personalized services that 

investor rights clinics offer. At a clinic, investors 

can have the face-to-face interaction with the clinic 

students, thereby avoiding telephone miscommunications, the need for computer access, and sales 

pressure tactics. Since clinic students and faculty 

routinely interact with victimized retail investors, 

they also can provide valuable feedback to the 

Foundation on policy issues that the Foundation 

and FINRA should consider to provide more 

effective investor financial awareness and education 

and to help investors avoid fraud. 

REPORT ON OBJECTIVES: FISCAL YEAR 201 8 | 23
 

The Ombudsman agrees with the Task Force that 

using FINRA fines and penalties to fund law school 

arbitration clinics would be an appropriate use for 

FINRA to consider. The Ombudsman is concerned 

about the challenges faced by investors—especially 

pro se investors who face sophisticated opposing 

counsel representing broker-dealer firms in a forum 

that has become increasingly complex—when the 

life savings of the investor are at stake and there 

is little ground for appeal. Investor rights clinics 

fill a critical void by supplying information and 

advocacy services to vulnerable retail investors in 

need. Competent representation of retail investors 

in FINRA’s dispute resolution forum is a critically 

important step in helping vulnerable retail investors 

protect their rights. These clinics and the investors 

they serve merit the Foundation’s support. 

LAW SCHOOL CLINIC OUTREACH 

PROGRAM 

Several law schools across the country run 

securities law and investor advocacy clinics that 

provide legal representation to retail investors who 

are unable to hire legal counsel to handle their 

claims.122 Many of these clinics also conduct local 

community outreach to inform vulnerable populations such as immigrants, veterans, and senior 

investors about financial products, saving and 

investing wisely, and avoiding fraud. 

In recent semesters, the Office has benefitted from 

SEC law student externs who have participated 

in these types of clinics at their respective law 

schools. In 2016, the Ombudsman, working 

directly with the Investor Advocate and a senior 

counsel, developed a framework for an outreach 

program to: (i) inform law schools with investor 

protection, securities law, and investor-focused 

clinics of the work of the Office; (ii) align with our 

Office’s statutory mandate and core functions; and 

(iii) benefit law student clinic participants and the 

investing public. The primary goal of the outreach 

program is to create a dynamic forum for clinic 

students to provide the Investor Advocate and 

Ombudsman with their perspectives, feedback, and 

formal comments on SEC rulemakings and policy 

and retail investor concerns. 

We began our in-person visits during this 

Reporting Period at the Pace University School of 

Law Investor Rights Clinic and the University of 

Miami School of Law Investor Rights Clinic.123 

The Ombudsman and a senior counsel submitted 

discussion topics and questions to the clinic faculty 

in advance of the visits, and spent time with the 

clinic faculty and students in the classroom setting. 

During the classroom discussions, the clinic 

students raised extremely insightful questions and 

points aimed at ameliorating common problems 

experienced by the clinic clients. Because of 

academic calendar scheduling conflicts, in lieu of 

a visit to the SEC, the Office arranged a virtual 

conference with one clinic during the Reporting 

Period, during which our Office engaged in an 

interactive discussion with the clinic faculty and 

students who discussed their suggestions and 

recommendations with the Office in greater detail. 

The clinic students are eager to identify areas in 

which retail investors could potentially benefit 

from rulemaking and policy changes, and to offer 

feedback and practical solutions. We are following 

up with the clinic faculty over the summer to 

arrange longer-term policy projects for the students 

as well as in-person visits to the SEC, during which 

the clinic faculty and students will have the opportunity to discuss the potential impact of SEC policy 

considerations on their clients with SEC Commissioners and other senior leaders. We look forward 

to sharing the progress of the outreach program in 

future reports. 

24 | OFFICE OF THE INVESTOR ADVOCATE 
OBJECTIVES AND OUTLOOK 

During the Reporting Period, retail investors 

continued to express their disenchantment with 

the SEC regulatory process, mainly focusing on 

the seeming distance between the concept and 

reality of investor protection provided by the SEC. 

To address this systemic issue, in FY 2018, the 

Ombudsman will closely examine the various 

ways the SEC communicates with the investing 

public to identify areas for improvement in both 

practice and perception. The Ombudsman 

plans to work closely with SEC divisions and 

offices to identify places where our messaging 

to retail investors—particularly as that messaging 

relates to the SEC’s mission, authority, and efforts 

to protect investors—should be refined and 

improved. 

To focus our efforts and staff resources properly, 

the Ombudsman will continue to track matter 

and contact data, identify trends, and conduct 

detailed research and analysis. With the pending 

launch of the OMMS Form to the public in the 

last quarter of FY 2017, the Ombudsman anticipates OMMS will help identify additional areas 

of concern to investors and permit more targeted 

research and analysis. Finally, the Ombudsman 

looks to FY 2018 as an opportunity to establish 

more extensive channels of communication with 

retail investors, including through working with 

more law school clinics and other organizations 

focused on retail investor concerns, and to continue 

to foster an environment for the voices of retail 

investors to be heard and considered as a vital part 

of the work of the Office. 

Tracey L. McNeil 

Ombudsman 

REPORT ON OBJECTIVES: FISCAL YEAR 201 8 | 25
26 | OFFICE OF THE INVESTOR ADVOCATE 
SUMMARY OF IAC
 

RECOMMENDATIONS AND
 

SEC RESPONSES
 

Congress established the Investor Advisory 

Committee to advise and consult with 

the Commission on regulatory priorities, 

initiatives to protect investor interests, initiatives to 

promote investor confidence and the integrity of 

the securities marketplace, and other issues.124 The 

Committee is composed of the Investor Advocate, 

a representative of state securities commissions, 

a representative of the interests of senior citizens, 

and not fewer than 10 or more than 20 members 

appointed by the Commission to represent the 

interests of various types of individual and institutional investors.125 

Exchange Act Section 39 authorizes the Committee 

to submit findings and recommendations for review 

and consideration by the Commission.126 The 

statute also requires the SEC to “promptly” issue a 

public statement assessing each finding or recommendation of the Committee and disclosing what 

action, if any, the Commission intends to take with 

respect to the finding or recommendation.127 While 

the Commission must respond to the IAC’s recommendations, it is under no obligation to agree with 

or act upon the recommendations.128 

In each of our reports to Congress, the Office of 

the Investor Advocate summarizes the IAC recommendations and the SEC’s responses to them.129 

The following table covers all recommendations 

the IAC has made since its inception.130 For more 

detailed summaries, please see our earlier reports 

to Congress. 

The Commission may be pursuing initiatives that 

are responsive to IAC recommendations but have 

not yet been made public. Commission staff— 

including the staff of this Office—are prohibited 

from disclosing nonpublic information;131 therefore, 

any such initiatives are not reflected in this Report. 

REPORT ON OBJECTIVES: FISCAL YEAR 201 8 | 27
 

Topic Date IAC Recommendation SEC Response 

Enhance Information for June 7, 2016 Provide post-trade price On November 17, 2016, the 

Bond Market Investors132 transparency, including 

markups or markdowns, 

in municipal, corporate 

and agency bonds and, 

over the longer term, 

provide pre-trade price 

transparency as well . 

SEC approved rules requiring 

disclosure of mark-ups and 

markdowns on most municipal 

and corporate bond transactions, 

calculated from the bond’s 

prevailing market price .133 FINRA 

and MSRB have announced 

that the new disclosure 

requirements will become 

effective on May 14, 2018 .134 

Mutual Fund Cost April 14, 2016 Enhance investors’ Pending 

Disclosure135 understanding of mutual 

fund costs and the impact 

of those costs on total 

accumulations over time . 

Provide standardized 

disclosure of actual 

dollar costs on customer 

account statements . 

Empowering Elders July 16, 2015 Develop a disciplinary Pending 

and Other Investors: database to allow easy 

Background Checks136 searches to determine 

whether a person or firm 

has been sanctioned for 

securities law violations . 

Reduce the complexity of 

background searches . 

Shortening the Trade February 12, 2015 Shorten the trade On March 22, 2017, the SEC 

Settlement Cycle137 settlement cycle from 

3 days after trade date 

(T+3) to 1 day (T+1) . 

adopted a rule to shorten the 

settlement cycle from T+3 to T+2 

by September 5, 2017, and kept 

open the possibility of eventually 

moving to T+1 . The adopting 

release specifically addressed the 

recommendation of the IAC .138 

Accredited Investor 

Definition139 

October 9, 2014 Consider enabling 

individuals to qualify 

as accredited investors 

based on their financial 

sophistication . 

On December 18, 2015, the 

SEC issued a staff report 

that discussed, among other 

alternatives, using sophistication 

as an element of the accredited 

investor definition . 

28 | OFFICE OF THE INVESTOR ADVOCATE 
Topic Date IAC Recommendation SEC Response 

Impartiality in the 

Disclosure of Preliminary 

Voting Results140 

October 9, 2014 Ensure impartiality in the 

disclosure of preliminary 

results of proxy voting . 

Pending 

Crowdfunding141 April 10, 2014 Ensure that investors 

understand the risks of 

crowdfunding and avoid 

unaffordable financial 

losses by, inter alia, 

tightening restrictions 

on the amounts that 

investors can invest in 

crowdfunding . 

The SEC adopted final 

crowdfunding rules on 

October 30, 2015 .142 

Decimalization and Tick 

Sizes143 

January 31, 2014 Oppose any test or pilot 

programs to increase the 

minimum quoting and 

trading increments (“tick 

sizes”) in the securities 

markets . 

On May 6, 2015, the SEC 

approved a 2-year pilot 

program, which began on 

October 3, 2016 .144 

Legislation to Fund 

Investment Adviser 

Examinations145 

November 22, 

2013 

Ask Congress to 

authorize user fees 

on SEC-registered 

investment advisers to 

provide a scalable source 

of funding for more 

frequent compliance 

examinations of advisers . 

Though it has never made a 

statement requesting user fees, 

the SEC has made funding for 

increased coverage of investment 

adviser exams a top priority 

every year at least since FY 2015 . 

Broker-Dealer Fiduciary 

Duty146 

November 22, 

2013 

Establish a fiduciary duty 

for broker-dealers when 

they provide personalized 

investment advice to 

retail investors . 

On June 1, 2017, Chairman 

Jay Clayton requested public 

comments regarding this issue . 

Universal Proxy Ballots147 July 25, 2013 Allow universal ballots 

in connection with 

short slate director 

nominations . 

On October 26, 2016, the SEC 

proposed amendments to the 

proxy rules to require parties 

in a contested election to use 

universal proxy cards that would 

include the names of all board of 

director nominees .148 

REPORT ON OBJECTIVES: FISCAL YEAR 201 8 | 29
 

Topic Date IAC Recommendation SEC Response 

Data Tagging149 July 25, 2013 Promote the use of 

machine-readable data 

tagging formats for data 

filed with the SEC . 

The SEC has addressed data 

tagging in a number of final 

and proposed rules .150 On 

March 1, 2017, the SEC proposed 

amendments to require the filing 

of financial statement data using 

Inline XBRL .151 

Target Date Mutual 

Funds152 

April 11, 2013 Revise an SEC proposed 

rule on target date 

retirement fund names 

and marketing, and 

develop a glide path 

illustration based on a 

measure of fund risk . 

On April 3, 2014, the Commission 

reopened the comment period 

on the proposed rule in order 

to seek public comment on 

the IAC’s recommendations to 

adopt a risk-based glide path 

illustration and the methodology 

to be used for measuring risk .153 

The comment period closed on 

June 9, 2014 . 

General Solicitation and 

Advertising154 

October 12, 2012 Strengthen investor 

protections and enhance 

regulators’ ability to 

police the private 

placement market . 

The SEC adopted final general 

solicitation and advertising 

rules on July 10, 2013, and also 

proposed a related rule to 

enhance its ability to monitor 

the market following lifting of 

the ban . That proposal, which 

relates to most of the IAC 

recommendations, is pending .155 

30 | OFFICE OF THE INVESTOR ADVOCATE 
 

 

 

 

END NOTES 

1	 Exchange Act § 4(g)(6), 15 U.S.C. § 78d(g)(6). 

2	 Exchange Act § 4(g)(6)(A)(i), 15 U.S.C. 

§ 78d(g)(6)(A)(i). 

3	 Exchange Act § 4(g)(6)(B)(i), 15 U.S.C. 

§ 78d(g)(6)(B)(i). 

4	 Exchange Act § 4(g)(4)(A), 15 U.S.C. § 78d(g)(4)(A). 

5	 Exchange Act § 4(g)(8)(A), 15 U.S.C. § 78d(g)(8)(A). 

6	 Exchange Act § 4(g)(8)(D), 15 U.S.C. § 78d(g)(8)(D). 

7	 Exchange Act § 4(g)(8)(D), 15 U.S.C. § 78d(g)(8)(D). 

8	 Exchange Act § 4(g)(4)(B), 15 U.S.C. § 78d(g)(4)(B). 

9	 Exchange Act § 4(g)(4)(C), 15 U.S.C. § 78d(g)(4)(C). 

10	 Exchange Act § 4(g)(4)(D), 15 U.S.C. § 78d(g)(4)(D). 

11	 Exchange Act § 4(g)(4)(E), 15 U.S.C. § 78d(g)(4)(E). 

12	 Exchange Act § 39, 15 U.S.C. § 78pp. 

13	 Exchange Act § 39(b)(1)(A), 15 U.S.C. § 78pp(b)(1)(A). 

14	 Jay R. Ritter, Executive Summary: Where Have All the 

IPOs Gone?, Univ. of fla. (Mar. 17, 2017), https://site. 

warrington.ufl.edu/ritter/files/2017/03/Where-Have-Allthe-IPOs-Gone_exec-sum.pdf. 

15	 Companies with annual sales of less than $50 million 

(in constant 2009 dollars) had an average of 165 IPOs 

per year between 1980 and 2000, but that number has 

fallen more than 80 percent to only 28 IPOs per year 

between 2001 and 2012. Small company IPOs went 

from 53 percent of all IPOs in the earlier period to only 

28 percent in the latter period. See Xiaohui Gao, Jay 

R. Ritter & Zhongyan Zhu, Where Have All the IPOs 

Gone?, 48 J. fin. & QUantitative analysis 1663, 1667 

(Table 1 and Figure 1) (2013). 

16	 Id. 

17	 See, e.g., Editorial, Where Are the IPOs?, Wall st. J., 

Dec. 31, 2016, at A10. 

18	 See SEC, Office of the Investor Advocate, Report on 

Activities, Fiscal Year 2016, at 8-9 (Dec. 31, 2016) 

[hereinafter Report on Activities, Fiscal Year 2016], 

https://www.sec.gov/advocate/reportspubs/annualreports/sec-investor-advocate-report-on-activities2016.pdf. 

19	 See Christian Leuz & Peter D. Wysocki, The 

Economics of Disclosure and Financial Reporting 

Regulation: Evidence and Suggestions for Future 

Research, 54(2) J. acct. Res. 525 (2016). 

20	 See id. at 560-571. The downward trend in smallcompany IPOs started before the regulatory changes 

that began with the Sarbanes-Oxley Act of 2002 (SOX) 

and persisted even after 2007, when small firms were 

exempted from many of SOX’s requirements. Gao, 

Ritter & Zhu, supra note 15, at 1665. It persisted even 

REPORT ON OBJECTIVES: FISCAL YEAR 201 8 | 31

after further deregulatory measures were passed in

the JOBS Act of 2012 and the FAST Act of 2014. In 

2016, only 74 operating companies went public, the 

lowest total since 2009. Jay R. RitteR, initial PUblic 

offeRings: UPdated statistics at 2 (Mar. 29, 2017), 

https://site.warrington.ufl.edu/ritter/files/2017/03/ 

IPOs2016Statistics_Mar29_2017.pdf. 

21	 Robert P. Bartlett III, Paul Rose & Steven Davidoff 

Solomon, What Happened in 1998? The Demise of 

the Small IPO and the Investing Preferences of Mutual 

Funds at 27, 43-44 (Ohio State Pub. Law, Working 

Paper No. 328, 2016), https://papers.ssrn.com/sol3/ 

papers.cfm?abstract_id=2718862. 

22	 Id. 

23	 See id. at 10 (“[A] growing fund’s aversion for illiquid 

stocks can translate into an associated aversion for 

smaller firms.”). 

24	 For example, under Section 5(b)(1) of the Investment 

Company Act of 1940, a mutual fund cannot qualify 

as diversified if it holds more than ten percent of the 

voting shares in any one company. Under Section 

22(e), a mutual fund must redeem shares within seven 

days of a redemption request, which could elevate the 

price impact of a large redemption in a thinly traded 

security. In addition, mutual funds are often restricted 

from investing in securities that are not listed on an 

exchange, so mutual funds may be unable to participate 

in the nearly 70 percent of small IPOs that are traded 

on non-exchange venues. Id. at 18. 

25	 The SEC’s Division of Economic and Risk Analysis, in 

its economic analysis of proposed amendments to the 

definition of a “smaller reporting company,” observed 

data suggesting that scaled disclosures have a negative 

effect on institutional ownership. See Securities Act 

Release No. 10107, 81 Fed. Reg. 43,130, 43,144 

(July 1, 2016). Moreover, the over-the-counter (OTC) 

markets, which feature tiers with varying levels of 

disclosure, offer unique insights into the trade-offs 

between disclosure and market integrity, particularly 

for small companies. OTC tiers with the stricter 

disclosure requirements are healthier and have higher 

liquidity and lower crash risk than the tiers with less 

disclosure. See Joshua T. White, Outcomes of Investing 

in OTC Stocks, SEC, Division of Economic and Risk 

Analysis White Paper, Dec. 16, 2016, https://www.sec. 

gov/files/White_OutcomesOTCinvesting.pdf. 

26	 Michael J. Mauboussin, Dan Callahan & Darius 

Majd, The Incredible Shrinking Universe of Stocks: 

The Causes and Consequences of Fewer U.S. Equities, 

cRedit sUisse at 8 (Mar. 22, 2017). 

27	 Id. at 10. 

28	 See Elisabeth de Fontenay, The Deregulation of Private 

Capital and the Decline of the Public Company, 68 

Hastings l.J. 445, 463-472 (Apr. 2017). 

29	 Id. at 448. 
 

30 scott baUgUess, RacHita gUllaPalli & vladimiR 

ivanov, caPital Raising in tHe U.s.: an analysis of 

tHe maRket foR UnRegisteRed secURities offeRings, 

2009-2014, at 7 fig.1 (Oct. 2015), https://www.sec.gov/ 

files/unregistered-offering10-2015.pdf. 

31 Gao et. al., supra note 15, at 1663-1692. 

32 Id. at 1671. 

33 See generally Concept Release on Equity Market 

Structure, Exchange Act Release No. 61358, 75 Fed. 

Reg. 3594 (Jan. 21, 2010) [hereinafter Equity Market 

Concept Release]. 

34 Id. 

35 Regulation NMS: Final Rules and Amendments to 

Joint Industry Plans, Exchange Act Release No. 51808, 

70 Fed. Reg. 37,496 (June 29, 2005) [hereinafter 

Regulation NMS] (Among other things, Regulation 

NMS eliminated trade-through protection for manual 

quotations). 

36 Regulation of Exchanges and Alternative Trading 

System: Final Rule, Exchange Act Release No. 40760, 

63 Fed. Reg. 70,844 (Dec. 22, 1998) [hereinafter 

Regulation ATS]. 

37 Order Execution Obligations, Exchange Act Release 

No. 37619A, 61 Fed. Reg. 48,290 (Sept. 12, 1996). 

38 See generally Equity Market Concept Release, supra 

note 33. 

39 See Regulation of NMS Stock Alternative Trading 

Systems, Exchange Act Release No. 76474, 80 Fed. 

Reg. 80,997, 81,001 (proposed Dec. 28, 2015). 

40 See Disclosure of Order Handling Information, 

Exchange Act Release No. 78309, 81 Fed. Reg. 49,431 

(proposed July 27, 2016). 

41 See id. 

42 See Comment Letter, Rick A. Fleming, Investor 

Advocate, SEC, RE: File No. S7-23-15, Regulation 

of NMS Stock Alternative Trading Systems (Sept. 9, 

2016), https://www.sec.gov/about/offices/investorad/ 

investor-advocate-comment-letter-regulation-ats.pdf. 

43 See id. 

44 See SEC, Press Release, SEC Announces Members 

of New Equity Market Structure Advisory 

Committee (Jan. 13, 2015), http://www.sec.gov/news/ 

pressrelease/2015-5.html; see also Equity Market 

Structure Advisory Committee, SEC, https://www. 

sec.gov/spotlight/equity-market-structure-advisorycommittee.shtml (last updated Feb. 9, 2017). 

45 SEC, Equity Market Structure Advisory Committee, 

Renewal Charter (Feb. 9, 2015), https://www.sec.gov/ 

spotlight/emsac/equity-market-structure-advisorycommittee-charter.pdf. 

46 See, e.g., Larry Harris, Maker-Taker Pricing Effects 

on Market Quotations, at 5 (Nov. 14, 2013), http:// 

bschool.huji.ac.il/.upload/hujibusiness/Maker-taker.pdf. 

47 Memorandum on Maker Taker Fees on Equity 

Exchanges, SEC Division of Trading and Markets, 

(Oct. 20, 2015), https://www.sec.gov/spotlight/emsac/ 

memo-maker-taker-fees-on-equities-exchanges.pdf. 

48 Id. 

49 See id. 

50 Id. As noted in the white paper, former Senator Carl 

Levin and Senator Charles Schumer had written 

to the SEC Chair to urge the SEC to take action to 

eliminate such conflicts of interest, noting in support 

of their recommendation certain academic and market 

research into order routing decisions that suggests that 

the conflict may be resulting in harm to certain types 

of investors. See, e.g., Letter from former Sen. Carl 

Levin (D-MI), to Mary Jo White, Chair, SEC (July 

9, 2014), https://www.hsgac.senate.gov/download/ 

levin-letter-to-sec-chairman-mary-jo-white-re-equitymarket-structure-july-15_2014. A recent academic 

paper analyzed selected market data and suggests that a 

significant number of retail firms route nonmarketable 

orders to the venue offering the highest rebate, and do 

so in a manner that the authors believe might not be 

consistent with the brokers’ duty of best execution. See 

Robert Battalio, Shane A. Corwin & Robert Jennings, 

Can Brokers Have it All? On the Relation Between 

Make-Take Fees and Limit Order Execution Quality, 

at 5 (Mar. 31, 2015), http://papers.ssrn.com/sol3/ 

papers.cfm?abstract_id=2367462. 

51 See SEC, EMSAC, Recommendation for an Access 

Fee Pilot (July 8, 2016), https://www.sec.gov/spotlight/ 

emsac/recommendation-access-fee-pilot.pdf. 

52 Federal Reserve Board, Financial Accounts of the 

United States: Flow of Funds, Balance Sheets, and 

Integrated Macroeconomic Accounts, Fourth Quarter 

2016, Table L.212 (Mar. 9, 2017, 12:00 PM), http:// 

www.federalreserve.gov/releases/z1/current/z1.pdf. 

53 Id. 

54 Customer transactions include purchases and 

sales between customers. It excludes inter-dealer 

transactions. See MSRB, 2015 Fact Book, at 7-8 

(March 2016), http://www.msrb.org/msrb1/pdfs/ 

MSRB-Fact-Book-2015.pdf [hereinafter 2015 

MSRB Fact Book]; MSRB, 2016 Fact Book, at 7-8 

(March 2017), http://www.msrb.org/msrb1/pdfs/ 

MSRB-Fact-Book-2016.pdf [hereinafter 2016 MSRB 

Fact Book]. 

55 Specifically, the MSRB Fact Book data suggests 

the par dollar amount of customer transactions in 

municipal securities, as a percentage of the total par 

dollar amount of municipal trades, increased from 

approximately 77 percent in 2015 to approximately 

80 percent in 2016. This increase follows a decrease 

from approximately 84 percent in 2011 to 77 percent 

in 2015. 2015 MSRB Fact Book, supra note 54, at 7-8; 

2016 MSRB Fact Book, supra note 54, at 7-8. 

32 | OFFICE OF THE INVESTOR ADVOCATE 
56 2015 MSRB Fact Book, supra note 54, at 7-8; 2016 

MSRB Fact Book, supra note 54, at 7-8. 

57 2015 MSRB Fact Book, supra note 54, at 7-8; 2016 

MSRB Fact Book, supra note 54, at 8. 

58 See SEC, Office of the Investor Advocate, Report on 

Objectives, Fiscal Year 2015 (June 30, 2014), http:// 

www.sec.gov/reportspubs/annual-reports/sec-officeinvestor-advocate-report-on-objectives-fy2015. 

pdf; see also SEC, Office of the Investor Advocate, 

Report on Objectives, Fiscal Year 2016 (June 30, 

2015) [hereinafter Report on Objectives, Fiscal Year 

2016], http://wcm.sec.gov/advocate/reportspubs/ 

annual-reports/sec-office-investor-advocate-reporton-objectives-fy2016.pdf; see also SEC, Office of 

the Investor Advocate, Report on Objectives, Fiscal 

Year 2017 (June 30, 2016) [hereinafter Report on 

Objectives, Fiscal Year 2017], https://www.sec.gov/ 

advocate/reportspubs/annual-reports/sec-office-investoradvocate-report-on-objectives-fy2017.pdf. 

59 See Report on Objectives, Fiscal Year 2016, supra 

note 58; Report on Objectives, Fiscal Year 2017, 

supra note 58. 

60 MSRB, Press Release, Jennifer A. Galloway, Chief 

Communications Officer, MSRB Holds Quarterly 

Board Meeting (May 1, 2017), http://msrb.org/ 

News-and-Events/Press-Releases/2017/MSRB-HoldsQuarterly-Board-Meeting-April-2017.aspx. 

61 Id. 

62 See Proposed Amendments to Municipal Securities 

Disclosure, Exchange Act Release No. 80130, 

82 Fed. Reg. 13,928 (proposed Mar. 15, 2017), 

https://www.gpo.gov/fdsys/pkg/FR-2017-03-15pdf/ 

2017-04323.pdf. 

63 Id. 

64 SEC, Press Release, SEC Proposes Rule Amendments 

to Improve Municipal Securities Disclosures 

(Mar. 1, 2017), https://www.sec.gov/news/ 

pressrelease/2017-57.html. 

65 The first proposal would apply to the conceptual 

framework that FASB uses as a guide in its own 

decision-making process. The second proposal would 

be an Accounting Standards Update. Proposed 

Amendments to Statement of Financial Accounting 

Concepts No. 8, Conceptual Framework for Financial 

Reporting: Chapter 3, fin. accoUnting standaRds 

bd. (Sept. 24, 2015), http://www.fasb.org/jsp/FASB/ 

Document_C/DocumentPage?cid=1176166402450&ac 

ceptedDisclaimer=true. Proposed Accounting Standards 

Update, Notes to Financial Statements (Topic 235): 

Assessing Whether Disclosures Are Material, fin. 

accoUnting standaRds bd. (Sept. 24, 2015), http:// 

www.fasb.org/jsp/FASB/Document_C/DocumentPage?c 

id=1176166402325&acceptedDisclaimer=true. 

66 See, e.g., Online Comment Letters, fin. accoUnting 

standaRds bd., http://www.fasb.org/jsp/FASB/ 

CommentLetter_C/CommentLetterPage&cid=121822 

0137090&project_id=2015-310 (last visited May 17, 

2017) (noting comment letters submitted to FASB by 

the California Public Employees’ Retirement System 

(CalPERS) on Dec. 8, 2015; the CFA Institute on Jan. 

21, 2016; the Council of Institutional Investors (CII) 

on Dec. 3, 2015; and Jack Ciesielski, R.G. Associates, 

Inc. on Dec. 7, 2015). See fin. accoUnting standaRds 

bd., boaRd meeting HandoUt: disclosURe fRameWoRk 

(Mar. 2, 2016), http://www.fasb.org/jsp/FASB/ 

Document_C/DocumentPage&cid=1176167952679, 

for a summary of comment letters submitted to FASB. 

67 See also PCAOB Investor Advisory Group report, 

which states: “(i) NGFM are a critical means of 

communication for management, (ii) NGFM are very 

useful signals of management behavior, (iii) industry 

leadership often discusses and may prescribe useful 

NGFM, and (iv) investors use NGFM extensively as 

inputs or adjustments to valuation models.” See also 

PUb. co. accoUnting oveRsigHt bd., RePoRt fRom tHe 

WoRking gRoUP on non-gaaP financial measURes 

15 (Oct. 27, 2016), https://pcaobus.org/News/Events/ 

Documents/102716-IAG-meeting/non-GAAP-WGslides.pdf. 

68 See, e.g., James V. Schnurr, Chief Accountant, SEC, 

Remarks before the 12th Annual Life Sciences 

Accounting and Reporting Congress (Mar. 22, 2016), 

http://www.sec.gov/news/speech/schnurr-remarks-12thlife-sciences-accounting-congress.html; Mary Jo White, 

Chair, SEC, Keynote Address at the 2015 AICPA 

National Conference: “Maintaining High-Quality, 

Reliable Financial Reporting: A Shared and Weighty 

Responsibility” (Dec. 9, 2015), http://www.sec.gov/ 

news/speech/keynote-2015-aicpa-white.html. 

69 Wesley Bricker, Chief Accountant, SEC, Working 

Together to Advance High Quality Information in the 

Capital Markets (Dec. 5, 2016), https://www.sec.gov/ 

news/speech/keynote-address-2016-aicpa-conferenceworking-together.html. 

70 On the role of audit committees, see id. 

71 For a brief review of internal control requirements, see 

Wesley R. Bricker, Chief Accountant, SEC, Remarks 

before the Annual Life Sciences Accounting and 

Reporting Congress: “Advancing Effective Internal 

Control and Credible Financial Reporting” (Mar. 

21, 2017), https://www.sec.gov/news/speech/brickerremarks-annual-life-sciences-accounting-and-reportingcongress-032117. 

72 Report on Objectives, Fiscal Year 2016, supra note 

58, at 9. The fiduciary duty discussion in the Report 

on Objectives, Fiscal Year 2016 is incorporated by 

reference herein. 

73 Definition of the Term “Fiduciary”; Conflict of Interest 

Rule – Retirement Investment Advice, 81 Fed. Reg. 

20,946 (Apr. 8, 2016) (to be codified at 29 C.F.R. pts. 

2509, 2510, and 2550); Amendment to and Partial 

Revocation of Prohibited Transaction Exemption (PTE) 

REPORT ON OBJECTIVES: FISCAL YEAR 201 8 | 33
 

 

 

 

 

84-24 for Certain Transactions Involving Insurance 

Agents and Brokers, Pension Consultants, Insurance 

Companies, and Investment Company Principal 

Underwriters, 81 Fed. Reg. 21,147 (Apr. 8, 2016) 

(to be codified at 20 C.F.R. pt. 2550); Best Interest 

Contract Exemption, 81 Fed. Reg. 21,002 (Apr. 8, 

2016) (to be codified at 20 C.F.R. pt. 2550). 

74 See, e.g., SEC, Recommendation of the Investor 

Advisory Committee Regarding Broker-Dealer 

Fiduciary Duty (Nov. 22, 2013), https://www.sec.gov/ 

spotlight/investor-advisory-committee-2012/fiduciaryduty-recommendation-2013.pdf. 

75 Jay Clayton, Chairman, SEC, Public Comments 

from Retail Investors and Other Interested Parties 

on Standards of Conduct for Investment Advisers 

and Broker-Dealers (June 1, 2017), https://www. 

sec.gov/news/public-statement/statement-chairmanclayton-2017-05-31. In addition, while recently 

serving as Acting Chairman of the SEC, Commissioner 

Michael Piwowar stated that the Commission should 

take the lead in adopting a fiduciary standard that 

would apply to all retail brokerage accounts. See Dave 

Michaels, SEC Should Write Fiduciary Rule, Acting 

Chairman Says, Wall st. J. (Apr. 21, 2017, 5:21 PM), 

https://www.wsj.com/articles/secs-acting-chairmansupports-new-standard-for-brokers-advising-retailclients-1492789509. 

76 Dodd-Frank Act, Pub. L. No. 111-203, § 913, 124 

Stat. 1376 (2010). 

77 Exchange Act § 4(g)(8)(B), 15 U.S.C. § 78d(g)(8)(B). 

78 Exchange Act § 4(g)(8)(D), 15 U.S.C. § 78d(g)(8)(D). 

79 As used in this report, the term “Ombudsman” may 

refer to the Ombudsman, or to the Ombudsman and 

Office of the Investor Advocate staff and contractors 

directly supporting the ombudsman function. 

80 What We Do, SEC (June 10, 2013) [hereinafter What 

We Do], https://www.sec.gov/Article/whatwedo.html. 

81 Mary Jo White, Chair, SEC, Chairman’s Address 

at SEC Speaks: Beyond Disclosure at the SEC in 

2016 (Feb. 19, 2016), https://www.sec.gov/news/ 

speech/white-speech-beyond-disclosure-at-thesec-in-2016-021916.html. 

82 About the Division of Corporate Finance, SEC 

(Oct. 5, 2015), https://www.sec.gov/divisions/corpfin/ 

cfabout.shtml. 

83 About Office of Compliance Inspections and 

Examinations, SEC (Apr. 19, 2017), https://www.sec. 

gov/ocie/Article/ocie-about.html. 

84 Luis Aguilar, Comm’r, SEC, Capital Formation from 

the Investor’s Perspective (Dec. 3, 2012), https://www. 

sec.gov/news/speech/2012-spch120312laahtm. 

85 What We Do, supra note 80. 

86 Administrative Conference of the United States, a 

ReaPPRaisal – tHe natURe and valUe of ombUdsmen in 

fedeRal agencies, PaRt 1: execUtive sUmmaRy (2016) 

[hereinafter ACUS Report], https://www.acus.gov/sites/ 

default/files/documents/PART%201_Executive%20 

Summary%20%28ACUS%29%2011.16.16_0.pdf. 

87 The bullet points that follow are quotes from the ACUS 

Report. ACUS Report, supra note 86. 

88 Id. at 7. 

89 Id. at 56. 

90 Id. at 57; see generally id. at 15. 

91 Id. at 57. 

92 Id. at 29. 

93 Id. 

94 Id. 

95 Exchange Act § 4(g)(8)(B)(i), 15 U.S.C. 

§ 78d(g)(8)(B)(i). 

96 See FINRA, FINRA Arbitration Task Force Issues 

Final Report (Dec. 16, 2015), https://www.finra.org/ 

newsroom/2015/finra-arbitration-task-force-issuesfinal-report. The NAMC is FINRA’s Standing Board 

Advisory Committee on dispute resolution who meet 

to discuss the Final Report and recommend items to 

implement immediately, items to discussion further, and 

identify items that may not be feasible. Id. 

97 See finRa, final ReP. and Recommendations of 

tHe finRa disP. Resol. task foRce (Dec. 16, 2015) 

[hereinafter final RePoRt], at 5, https://www.finra.org/ 

sites/default/files/Final-DR-task-force-report.pdf. 

98 FINRA, Status Report on FINRA Dispute Resolution 

Task Force Recommendations (Feb. 8, 2017) 

[hereinafter Status Report], https://www.finra.org/sites/ 

default/files/DR_task_report_status_020817.pdf. 

99 Id. 

100 Report on Activities, Fiscal Year 2016, supra note 18, 

at 37. 

101 See FINRA RUle 12800. 

102 FINRA RUle 12800(c). 

103 See final RePoRt, supra note 97, at 28. 

104 Id. 

105 Id. at 29. 

106 Id. 

107 Id. 

108 FINRA, December 2016 Board Update (Dec. 15, 

2016), http://www.finra.org/industry/december-2016­

board-update. 

109 FINRA, Update: FINRA Board of Governors Meeting 

(Dec. 15, 2016), http://www.finra.org/industry/updatefinra-board-governors-meeting-121516. 

110 final RePoRt, supra note 97, at 23. 

34 | OFFICE OF THE INVESTOR ADVOCATE 
 

111 Status Report, supra note 98, at 9. 

112 final RePoRt, supra note 97, at 21. 

113	 Status Report, supra note 98, at 9; see also FINRA 

RUle 12214(e). 

114 FINRA RUle 12514(d). 

115	 finRa foUndation, About Us, http://www. 

finrafoundation.org/about/ (last visited June 5, 2017) 

[hereinafter About Us]. 

116 final RePoRt, supra note 97, at 52. 

117 Id. 

118 Id. 

119 About Us, supra note 115. 

120 bRokeRcHeck, FINRA, https://brokercheck.finra.org/ 

(last visited May 4, 2017). 

121	 Securities Helpline for Seniors (HELPS), FINRA, http:// 

www.finra.org/investors/finra-securities-helpline-seniors 

(last visited May 4, 2017). 

122 A list of these law school clinics is available at 

https://www.sec.gov/answers/arbclin.htm. 

123 The Investor Advocate, the Ombudsman, and the 

Office are extremely appreciative of the time and effort 

extended, and the comprehensive recommendations 

made, by the clinic faculty and students in helping us 

make meaningful changes to policies affecting retail 

investors, particularly those investors in vulnerable 

populations. 

124 Exchange Act § 39(a), 15 U.S.C. § 78pp(a). 

125 Id. 

126 Exchange Act § 39(a)(2)(B), 15 U.S.C. § 78pp(a)(2)(B). 

127 Exchange Act § 39(g), 15 U.S.C. § 78pp(g). 

128 Exchange Act § 39(h), 15 U.S.C. § 78pp(h). 

129 According to Exchange Act Section 4(g)(6)(B)(ii), 15 

U.S.C. § 78d(g)(6)(B)(ii), a Report on Activities must 

include several enumerated items, and it may include 

“any other information, as determined appropriate by 

the Investor Advocate.” 

130 For the full versions of the recommendations, see 

SEC, http://www.sec.gov/spotlight/investor-advisorycommittee-2012.shtml (last visited May 12, 2016). 

131 17 C.F.R. §§ 200.735-3(b)(2)(i), 230.122 (2014); 

Exchange Act § 24(b), 15 U.S.C. § 78x; 5 U.S.C. 

§ 552a(i)(1); SECR18-2, Section 8.5 (Nonpublic 

Information) (July 31, 2005). 

132 SEC, Recommendation of the Investor Advisory 

Committee to Enhance Information for Bond Market 

Investors (June 7, 2016), https://www.sec.gov/spotlight/ 

investor-advisory-committee-2012/recommendationenhance-information-bond-market-investors-060716. 

pdf. See also MSRB, Regulatory Notice 2016-28, New 

Disclosure Requirements Under MSRB Rule G-15 and 

Prevailing Market Price Guidance Pursuant to Rule 

G-30 Effective May 14, 2018 (Nov. 29, 2016), http:// 

www.msrb.org/~/media/Files/Regulatory-Notices/ 

Announcements/2016-28.ashx [hereinafter MSRB 

Notice 2016-28]; FINRA, Regulatory Notice 17-08, 

Pricing Disclosure in the Fixed Income Markets (Feb. 

2017) https://www.finra.org/sites/default/files/notice_ 

doc_file_ref/Regulatory-Notice-17-08.pdf [hereinafter 

FINRA Notice 17-08]. 

133 Self-Regulatory Organizations; Financial Industry 

Regulatory Authority, Inc.; Notice of Filing of 

Amendment No. 1 and Order Granting Accelerated 

Approval of a Proposed Rule Change, as Modified 

by Amendment No. 1, Relating to FINRA Rule 2232 

(Customer Confirmations) To Require Members to 

Disclose Additional Pricing Information on Retail 

Customer Confirmations Relating to Transactions in 

Certain Fixed Income Securities, Exchange Act Release 

No. 79346, 81 Fed. Reg. 84,659 (Nov. 23, 2016); 

Self-Regulatory Organizations; Municipal Securities 

Rulemaking Board; Notice of Filing of Amendment 

No. 1 and Order Granting Accelerated Approval of a 

Proposed Rule Change, as Modified by Amendment 

No. 1, to MSRB Rules G-15 and G-30 To Require 

Disclosure of Mark-Ups and Mark-Downs to Retail 

Customers on Certain Principal Transactions and 

To Provide Guidance on Prevailing Market Price, 

Exchange Act Release No. 79347, 81 Fed. Reg. 84,637 

(Nov. 23, 2016). 

134 FINRA Notice 17-08, supra note 132; MSRB Notice 

2016-28, supra note 132. 

135 SEC, Recommendation of the Investor Advisory 

Committee Regarding Mutual Fund Cost Disclosure 

(Apr. 14, 2016), https://www.sec.gov/spotlight/investoradvisory-committee-2012/recommendation-mf-feedisclosure-041916.pdf. 

136 SEC, Recommendation of the Investor Advisory 

Committee: Empowering Elders and Other Investors 

Re: Background Checks in the Financial Markets 

(July 16, 2015), https://www.sec.gov/spotlight/investoradvisory-committee-2012/final_iac_backgroundcheck_ 

recommendation_071615.pdf. 

137 SEC, Recommendation of the Investor Advisory 

Committee: Shortening the Trade Settlement Cycle in 

U.S. Financial Markets (Feb. 12, 2015), https://www. 

sec.gov/spotlight/investor-advisory-committee-2012/ 

settlement-cycle-recommendation-final.pdf. See also 

SEC, Press Release, SEC Adopts T+2 Settlement Cycle 

for Securities Transactions, 2017-68 (Mar. 22, 2017), 

https://www.sec.gov/news/press-release/2017-68-0. 

138 Securities Transaction Settlement Cycle, 

Exchange Act Release No. 80295, 82 Fed. Reg. 15,564 

(Mar. 29, 2017). 

REPORT ON OBJECTIVES: FISCAL YEAR 201 8 | 35
 

139	 See also SEC, Recommendation of the Investor 

Advisory Committee: Accredited Investor Definition 

(Oct. 9, 2014), https://www.sec.gov/spotlight/ 

investor-advisory-committee-2012/investment-advisoraccredited-definition.pdf. 

140	 See also SEC, Recommendation of the Investor 

Advisory Committee: Impartiality in the Disclosure of 

Preliminary Voting Results (Oct. 9, 2014), https://www. 

sec.gov/spotlight/investor-advisory-committee-2012/ 

impartiality-disclosure-prelim-voting-results.pdf. 

141 SEC, Recommendation of the Investor Advisory 

Committee: Crowdfunding Regulations (Apr. 10, 

2014), https://www.sec.gov/spotlight/investor-advisorycommittee-2012/investment-adviser-crowdfundingrecommendation.pdf. 

142 See the Office of the Investor Advocate’s Report 

on Objectives for Fiscal Year 2017 for an analysis 

of how the final rules correspond with the IAC 

recommendations. See Report on Objectives, Fiscal 

Year 2017, supra note 58. 

143	 See SEC, Recommendation of the Investor Advisory 

Committee Decimalization and Tick Sizes, https://www. 

sec.gov/spotlight/investor-advisory-committee-2012/ 

investment-adviser-decimilization-recommendation.pdf. 

144 SEC, Press Release, SEC Approves Pilot to Assess Tick 

Size Impact for Smaller Companies, 2015-82, (May 6, 

2015), https://www.sec.gov/news/pressrelease/2015-82. 

html. See Order Granting Exemption From Compliance 

With the National Market System Plan to Implement 

a Tick Size Pilot Program, Exchange Act Release No. 

76382, 80 Fed. Reg. 70,284 (Nov. 13, 2015) (stating 

that Participants are exempt from implementing the 

Tick Size Pilot until October 3, 2016). 

145	 See SEC, Recommendation of the Investor Advisory 

Committee: Legislation to Fund Investment Adviser 

Examinations (Nov. 22, 2013), https://www.sec.gov/ 

spotlight/investor-advisory-committee-2012/investmentadviser-examinations-recommendation-2013.pdf. 

146	 See SEC, Recommendation of the Investor Advisory 

Committee: Broker-Dealer Fiduciary Duty (Nov. 22, 

2013), https://www.sec.gov/spotlight/investoradvisory-committee-2012/fiduciary-dutyrecommendation-2013.pdf. 

147	 See SEC, Recommendations of the Investor Advisory 

Committee: Regarding SEC Rulemaking to Explore 

Universal Proxy Ballots (July 25, 2013), https://www. 

sec.gov/spotlight/investor-advisory-committee-2012/ 

universal-proxy-recommendation-072613.pdf. 

148	 See Universal Proxy, Exchange Act Release No. 79164, 

Investment Company Act Release No. 32339, 81 Fed. 

Reg. 79,122 (proposed Nov. 10, 2016). 

149 SEC, Recommendations of the Investor Advisory 

Committee Regarding the SEC and the Need for the 

Cost Effective Retrieval of Information by Investors 

(July 25, 2013), https://www.sec.gov/spotlight/ 

investor-advisory-committee-2012/data-taggingresolution-72513.pdf. 

150 See the Office of the Investor Advocate’s Report on 

Activities for Fiscal Year 2016 for a list of rulemakings 

that require data tagging. See Report on Activities, 

Fiscal Year 2016, supra note 18, at 53-54. 

151 Order Granting Limited and Conditional Exemption 

Under Section 36(a) of the Securities Exchange Act 

of 1934 from Compliance with Interactive Data File 

Exhibit Requirement in Forms 6-K, 8-K, 10-Q, 10-K, 

20-F and 40-F to Facilitate Inline Filing of Tagged 

Financial Data, Exchange Act Release No. 78041, 81 

Fed. Reg. 39,741 (June 17, 2016). SEC, Press Release, 

SEC Proposes Inline XBRL Filing of Tagged Data, 

2017-56, (Mar. 1, 2017), https://www.sec.gov/news/ 

pressrelease/2017-56.html. 

152 SEC, Recommendation of the Investor Advisory 

Committee: Target Date Mutual Funds (Apr. 11, 

2013), https://www.sec.gov/spotlight/investor-advisorycommittee-2012/iac-recommendation-target-datefund.pdf. 

153 Investment Company Advertising: Target Date 

Retirement Fund Names and Marketing, Securities Act 

Release No. 9570, Exchange Act Release No. 71861, 

Investment Company Act Release No. 31004, 79 Fed. 

Reg. 19,564 (proposed Apr. 9, 2014). 

154 SEC, Recommendations of the Investor Advisory 

Committee Regarding SEC Rulemaking to Lift the Ban 

on General Solicitation and Advertising in Rule 506 

Offerings: Efficiently Balancing Investor Protection, 

Capital Formation and Market Integrity (2012), 

https://www.sec.gov/spotlight/investor-advisorycommittee-2012/iac-general-solicitation-advertisingrecommendations.pdf. 

155 Eliminating the Prohibition Against General 

Solicitation and General Advertising in Rule 506 

and Rule 144A Offerings, Securities Act Release No. 

9415, Exchange Act Release No. 69959, Investment 

Advisers Act Release No. 3624, 78 Fed. Reg. 44,771 

(July 24, 2013). Disqualification of Felons and Other 

“Bad Actors” from Rule 506 Offerings, Securities Act 

Release No. 9414, 78 Fed. Reg. 44,729 (July 24, 2013). 

Amendments to Regulation D, Form D and Rule 156, 

Securities Act Release No. 9416, Exchange Act Release 

No. 69960, Investment Company Act Release No. 

30595, 78 Fed. Reg. 44,806 (proposed July 24, 2013). 

36	 | OFFICE OF THE INVESTOR ADVOCATE 
OFFICE OF THE 

INVESTOR ADVOCATE 

U .S . Securities and 

Exchange Commission 

100 F Street NE 

Washington, DC 20549 

202 .551 .3302