REPORT ON ACTIVITIES FISCAL YEAR 2016

U.S. SECURITIES AND EXCHANGE COMMISSION

Office of the 

Investor

 Advocate
This Report on Activities for Fiscal Year 2016 

is organized primarily around eight areas of 

policy focus. In each of those areas, we have 

strived to understand the needs of American 

investors and the implications of policy choices.
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | I

OFFICE OF THE INVESTOR ADVOCATE

REPORT ON ACTIVITIES

FISCAL YEAR 2016

Section 4(g)(6) of the Securities Exchange Act of 1934 (Exchange Act), 15 U.S.C. § 78d(g)(6), 

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 not 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 On 

June 30, 2015, the Office of the Investor Advocate (Office) filed a Report on Objectives for Fiscal 

Year 2016, which identified eight policy areas that the Office would focus upon during the year.3

Similarly, the Office filed a Report on Objectives for Fiscal Year 2017 on June 30, 2016.4

In addition to the Report on Objectives, a Report on Activities is due no later than December 31 

of each year.5 The Report on Activities shall describe the activities of the Investor Advocate during 

the immediately preceding fiscal year. Among other things, the report must include information 

on steps the Investor Advocate has taken to improve the responsiveness of the U.S. Securities 

and Exchange Commission (Commission or SEC) and self-regulatory organizations (SRO) to 

investor concerns, a summary of the most serious problems encountered by investors during the 

reporting period, identification of Commission or SRO action taken to address those problems, 

and recommendations for administrative and legislative actions to resolve problems encountered 

by investors.6

This Report on Activities for Fiscal Year 2016 is organized primarily around our eight areas 

of policy focus that were announced in our Report on Objectives for Fiscal Year 2016. In each 

of those areas, we have strived to understand the needs of American investors and the implications 

of policy choices. In a variety of ways, as more fully described below, we have identified proposed 

policy decisions that are likely to harm investors, have made recommendations for regulatory 

changes that will ease or resolve the problems encountered by investors, and have taken steps to 

improve the responsiveness of the Commission and SROs to investor concerns. The reporting 

period for this Report on Activities runs from October 1, 2015 to September 30, 2016 

(Reporting Period).
II | OFFICE OF THE INVESTOR ADVOCATE

Functions of the Investor Advocate Reporting Obligation

According to Exchange Act Section 4(g)

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

Advocate shall:

(A) assist retail investors in resolving 

significant problems such investors 

may have with the Commission or 

with 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.

According to Exchange Act Section 4(g)(6)

(B), 15 U.S.C. § 78d(g)(6)(B), the Investor 

Advocate shall submit to Congress, not later 

than December 31 of each year, a report 

on the activities of the Investor Advocate 

during the immediately preceding fiscal year. 

This Report on Activities must include the 

following:

(I) appropriate statistical information and 

full and substantive analysis;

(II) information on steps that the Investor 

Advocate has taken during the reporting period to improve investor services 

and the responsiveness of the Commission and SROs to investor concerns;

(III) a summary of the most serious problems encountered by investors during 

the reporting period; 

(IV) an inventory of the items described in 

subclause (III) that includes—

(aa) identification of any action taken 

by the Commission or the SRO 

and the result of such action;

(bb) the length of time that each item 

has remained on such inventory; 

and 

(cc) for items on which no action has 

been taken, the reasons for inaction, and an identification of any 

official who is responsible for such 

action;

(V) recommendations for such administrative and legislative actions as may 

be appropriate to resolve problems 

encountered by investors; and

(VI) any other information, as determined 

appropriate by the Investor Advocate.

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

Activities is provided directly to Congress without any prior review or comment from the Commission, 

any Commissioner, any other officer or employee of the Commission outside of the Office of the Investor 

Advocate, or the Office of Management and Budget. This Report on Activities 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 this Report on Activities and all 

analyses, findings, and conclusions contained herein.
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | III

CONTENTS

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

REPORT ON ACTIVITIES AND RECOMMENDATIONS 

RELATING TO THE FISCAL YEAR 2016 POLICY AGENDA . . . . . . . . . . . . . . . . . . . . . 3

Equity Market Structure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Municipal Market Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Effective Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Shareholder Rights and Corporate Governance. . . . . . . . . . . . . . . . . . . . . . . . . . 11

Financial Reporting and Auditing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Fiduciary Duty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Retirement Readiness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Millennials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

PROBLEMATIC INVESTMENT PRODUCTS AND PRACTICES. . . . . . . . . . . . . . . . . . . . 19

Simple Agreement for Future Equity in Crowdfunding Investments. . . . . . . . . . . . . 20

Business Development Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

INVENTORY OF INVESTOR ADVOCATE RECOMMENDATIONS 

AND SEC OR SRO RESPONSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

OMBUDSMAN’S REPORT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29

SUMMARY OF IAC RECOMMENDATIONS AND SEC RESPONSES. . . . . . . . . . . . . . . . .47

END NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Our new testing program will help 

the Commission understand the 

needs of investors. . . . It will help the 

Commission be more data-driven, 

not only when it comes to calculating 

the costs or burdens of proposed 

regulations upon regulated entities, 

but also in determining the quantitative 

or qualitative benefits to investors. 
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 1

MESSAGE FROM THE

INVESTOR ADVOCATE

As Fiscal Year 2016 draws to a close, 

the Office of the Investor Advocate takes 

pride in our accomplishments during 

the second full year of our existence, and we are 

eager to implement new strategic initiatives that 

will help the U.S. Securities and Exchange 

Commission (SEC) serve investors more effectively. 

We celebrate the work of our policy team, which 

is now fully staffed, and we look forward to the 

implementation of new technology that will 

create efficiencies and help the Ombudsman team 

provide an even higher level of customer service. 

We have also laid a foundation for the Commission 

to conduct regular investor testing, and we are 

excited about the possibilities that lie ahead 

through the use of new tools to determine the 

best interests of investors.

Our policy team reached a milestone in May 

2016, when we were able to hire an attorney with 

experience in the SEC’s Division of Corporation 

Finance. This attorney, Alexandra Ledbetter, became 

our primary liaison with that Division, and we now 

have staff attorneys who serve as liaisons with each 

of the Commission’s rulemaking divisions and track 

the developments in their respective policy areas. 

Policy staff also achieved significant professional 

milestones, with Stephen Deane earning a Chartered 

Financial Analyst designation, Marc Sharma being 

selected as an Excellence in Government Fellow, 

and Ashlee Connett completing the SEC’s Aspiring 

Leader Program.

A primary function of the policy team is to meet 

our statutory mandate to analyze the impact on 

investors of proposed rules and regulations, not 

only in connection with Commission rulemakings, 

but also with respect to the 

rulemakings of the selfregulatory organizations 

(SRO) like the Financial 

Industry Regulatory 

Authority (FINRA), the 

Municipal Securities 

Rulemaking Board (MSRB), 

and the 20 national securities 

exchanges. During Fiscal 

Year 2016, we analyzed 

22 of the Commission’s proposed regulations and 

concept releases, many of which were hundreds 

of pages in length. We also analyzed the impact 

on investors of a significant exchange registration 

application, an interpretation of a key part of 

Regulation National Market System, and several 

proposed NMS Plans and amendments, including 

the creation of the Consolidated Audit Trail. 

In addition to Commission rulemakings, our team 

of four staff attorneys and one financial analyst 

reviewed numerous SRO proposals, including 64 by 

FINRA, 24 by the MSRB, and 225 by the national 

securities exchanges. As these statistics suggest, the 

volume of rule changes by the exchanges is quite 

large, and in fact, they totaled more than 1,300 

in calendar year 2015. Thus, while we conduct a 
2 | OFFICE OF THE INVESTOR ADVOCATE

substantive analysis of most FINRA and MSRB 

proposals, we have developed a system to triage and 

prioritize the filings by the exchanges,7 leading to a 

more efficient use of our limited resources. 

As part of our statutory duties, we are expected to 

identify areas in which investors would benefit from 

changes in Commission regulations, SRO rules, or 

statutes. We engage in this activity primarily within 

the context of our analysis of proposed amendments, 

when we suggest ways that the proposals could be 

modified to benefit investors. Often, this type of 

work is performed behind the scenes in informal 

communications with rulemaking teams and 

Commission or SRO leadership. However, we 

also submit written suggestions to the Commission 

or SROs in the form of comment letters or 

formal recommendations. During FY 2016, we 

submitted our first two formal recommendations 

to the Commission, which require a response within 

three months, and we filed six comment letters. 

We also made two recommendations to Congress 

concerning legislation that would impact investors. 

These activities are described in greater detail in 

this Report. 

Another important part of our work involves 

assisting retail investors to resolve any concerns they 

may have with the Commission or an SRO. The 

SEC Ombudsman, Tracey McNeil, and her team 

provide important customer service to investors who 

may be frustrated or overwhelmed in the midst of 

difficult circumstances. During FY 2016, they have 

provided service to hundreds of individual investors, 

as described in the Ombudsman’s Report beginning 

on page 29. They are also on the cusp of launching 

an important new technological solution that will 

enhance their capabilities.

Finally, I would like to highlight a new initiative at 

the SEC that is being led by the Office of the Investor 

Advocate and our economist, Brian Scholl, Ph.D. 

Working with the SEC’s Office of Acquisitions, and 

in consultation with numerous offices and divisions, 

Dr. Scholl has designed a program to facilitate 

greater use of investor testing by the Commission. 

This will include a range of testing modalities, 

including surveys, focus group testing, and A-B 

testing, among other things. 

In my view, investor testing provides an opportunity 

to alleviate a significant shortcoming of the 

rulemaking process. In that process, proposed rules 

are published for public comment, but members 

of the general public who stand to benefit from 

the rules are underrepresented in the comment 

letters that are submitted. This should come as no 

surprise, given that the average person has little 

to no awareness of SEC rulemaking and may find 

it challenging to submit substantive comments on 

complex rulemakings that may be hundreds of 

pages in length.

Our new testing program will help the Commission 

understand the needs of investors, even in the 

absence of formal public comments by investors. 

It also will be a tool for determining which of the 

many competing policy choices would serve the 

needs of investors most effectively. Ultimately, it will 

help the Commission be more data-driven, not only 

when it comes to calculating the costs or burdens 

of proposed regulations upon regulated entities, but 

also in determining the quantitative or qualitative 

benefits to investors.

It is a great honor to lead the Office of the Investor 

Advocate. I am very proud of the accomplishments 

of my team, and I would be pleased to answer any 

questions about our activities. 

Sincerely,

Rick A. Fleming

Investor Advocate 
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 3

REPORT ON ACTIVITIES AND 

RECOMMENDATIONS 

RELATING TO THE FISCAL YEAR 2016 

POLICY AGENDA

On Jun

Invest

Objec

e 30, 2015, the Office of the 

or Advocate filed a Report on 

tives for Fiscal Year (FY) 2016.8

The Report identified eight key policy areas 

that would be the primary focus of the Office 

during its second full year of existence:9

 equity 

market structure, municipal market reform, 

effective disclosure, shareholder rights and 

corporate governance, financial reporting and 

auditing, fiduciary duty, retirement readiness, and 

Millennials. This Report on Activities describes 

our activities and recommendations within each 

of those policy areas during FY 2016.

EQUITY MARKET STRUCTURE

In FY 2016, the Office worked with Commission 

staff and relevant SROs to encourage equity market 

structure reforms designed to enhance market 

resilience, efficiency, transparency, and fairness. 

We analyzed proposed rules, including significant 

Commission proposals concerning alternative 

trading venue regulation and the disclosure of 

broker order handling activity, to examine their 

potential impact on investors. In some cases, we 

advocated publicly in the form of comment letters 

and formal recommendations, but we also spent 

considerable time and effort advocating in less 

formal ways for improvements that would benefit 

and protect investors.

Currently, around 35 percent of market volume in 

New York Stock Exchange (NYSE) and Nasdaq 

Stock Market LLC (Nasdaq)-listed stocks is 

executed in dark alternative trading systems 

(ATS) and broker-dealer platforms, rather than

on lit venues like the NYSE.10 Investors and other 

market participants have expressed concern that 

the current regulatory requirements relating to 

operational transparency for ATSs, particularly 

those that execute trades in National Market 

System (NMS) stocks, may no longer fully meet the 

goal of furthering the public interest and protecting 

investors. Unlike registered national securities 

exchanges, there is limited public information 

available to market participants about the 

operations of ATSs, including how orders interact, 

match, and execute on ATSs. There is also limited 

information about the potential conflicts of interest 

that arise from the activity of the broker-dealer 

operator of the ATS.11 The lack of operational 

transparency limits market participants’ ability 

to adequately assess the relative merits of many 

trading centers, and recent enforcement actions 

against certain alternative trading systems have 

highlighted these concerns.12

In November 2015, the Commission proposed 

significant amendments to Regulation ATS to 

enhance the operational transparency of venues 

that trade listed equity securities.13 Our Office 

monitored the public comment process and 

evaluated the proposal’s potential impact on 

investors. It appeared that greater information 

about the operation of these venues could allow 

sophisticated investors to better compare the 

trading venues and order routing products. 
4 | OFFICE OF THE INVESTOR ADVOCATE

Consequently, in September 2016, our Office 

submitted a comment letter to the Commission 

in support of the proposed amendments.14 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.15 We will continue to 

advocate for greater transparency in FY 2017 and 

encourage the Commission to adopt a final rule in 

the near future. 

Several efforts are also under way to improve 

Regulation NMS.16 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.17 This would 

provide customers with better information to 

evaluate the quality of execution for the orders they 

place.18 We have evaluated the proposal, including 

questions surrounding the proposed definition of 

institutional order and its impact on the ability of 

institutional customers to obtain information about 

all their orders, and we anticipate submitting a 

comment letter on the proposal after the 

Reporting Period.

In addition to reviewing Commission rulemakings, 

the Office of the Investor Advocate is responsible 

for analyzing the potential impact on investors of 

proposed rules of SROs.19 In furtherance of this 

objective, the Office has analyzed the potential 

impact of various SRO proposals related to equity 

market structure. For example, in November 2015, 

the BATS Exchange, since renamed Bats BZX 

Exchange, proposed to adopt a new rule to prevent 

layering and spoofing on the exchange by creating 

a process for expedited suspension proceedings.20

On December 15, 2015, acting under our Office’s 

statutory authority, we recommended that the 

Commission approve the proposed rule amendment 

and encouraged other SROs to make similar efforts 

to expedite their regulatory processes when clear 

evidence of manipulative trading is identified.21 In 

February 2016, the Commission granted approval 

of the proposed rule change, discussing the merits 

of our recommendation in the formal order.22 Since 

that time, many other exchanges have adopted 

such rules, including the sister exchanges of Bats 

BZX Exchange,23 two Nasdaq-affiliated equity 

exchanges,24 and three Nasdaq-affiliated options 

markets.25 Recently, FINRA submitted a similar 

rule amendment to the Commission.26

During the Reporting Period, there were numerous 

other initiatives that we monitored closely. Often, 

we chose not to formally comment upon them 

if we considered the proposals to be favorable 

for investors. For example, in the wake of two 

troubling market events during the summer of 

2015, the Commission and SROs have taken 

certain steps to bolster risk management and 

resilience in the equity markets. Following an 

hours-long trading outage on the NYSE on 

July 8, 2015, both NYSE and Nasdaq submitted 

and received Commission approval to establish 

contingency procedures to back up each other’s 

closing auctions in the event of such future 

trading outages.27 Then, following the unusual 

market volatility experienced on August 24, 2015, 

particularly in the ETF market, the Commission28

and SROs have adjusted several exchange rules that 

may have contributed to the volatility, including the 

widening of opening and re-opening auction collars 

and enhancements to the limit-up/limit-down pilot 

program.29 Our Office has monitored the progress 

made in understanding and addressing the causes 

of these troubling market events. 

The Commission and SROs have also taken 

important final steps to improve regulatory 

oversight of the equity markets. In April 2016, 

FINRA received approval to require the registration 

of persons responsible for the design, development, 

and modification of algorithmic trading strategies 

and for the day-to-day supervision of such 

activities.30 The Commission noted that this 
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 5

would require a minimum standard of knowledge 

regarding the securities rules and regulations 

applicable to the broker-dealer employing the 

algorithm, potentially reducing problematic market 

conduct and manipulative trading activities.31 Also 

in April, FINRA received approval to reduce the 

synchronization tolerance for computer clocks used 

to record events in equity markets.32 In approving 

the proposal, the Commission noted it would 

improve transparency and enhance surveillance 

and enforcement capabilities, thereby permitting 

FINRA to compile more accurate audit trail data 

and conduct more precise surveillance.33 In May 

2016, the Commission approved a third FINRA 

proposal requiring ATSs to report additional 

specific order information, such as re-pricing events 

and order display information, which will be used 

to more fully reconstruct an ATS’s order book and 

perform order-based surveillance.34

On November 15, 2016, after years of consideration, the Commission approved an SRO plan 

to govern a Consolidated Audit Trail designed 

to enhance, centralize, and generally update the 

regulatory data infrastructure available to market 

regulators.35 In our view, this is a development 

of monumental importance because, once implemented, regulators will have ready access to all 

trade and order data, facilitating more prompt and 

complete analysis of market events such as the 

May 6, 2010 “Flash Crash” that saw U.S. equity 

and futures markets experience a sudden breakdown of orderly trading. With this data, the Commission will be able to more readily determine what 

happened, who was affected and how, whether 

any regulatory responses might be required, and 

what shape such responses should take. 

In addition, the Office continues to monitor SRO 

activity to address concerns about trading speeds. 

In October 2015, the Commission approved the 

Chicago Stock Exchange’s (CHX) proposed intraday and on-demand auction service, noting that it 

was intended to deemphasize speed advantages in 

the market.36 CHX’s “SNAP” auctions ultimately 

launched on the exchange in June 2016,37 although 

the initial public data from the exchange suggests 

only a handful of successful auctions in the first few 

months after the launch.38

Another important event occurred in June 2016, 

when the Commission granted the registration 

application for Investors’ Exchange, LLC (IEX), 

determining that an exchange can, consistent with 

the public interest and the protection of investors, 

provide access to participants with a hardwired 

350 microseconds of latency to the primary 

trading platform.39 Since the IEX approval, other 

exchanges have begun to consider ways to address 

concerns about trading speed. In September, CHX 

proposed to adopt a “liquidity taking access 

delay” and thereby require that all new incoming 

marketable orders, as well as certain related 

cancel messages, be intentionally delayed for 350 

microseconds.40 We have also seen other exchanges 

publicly discussing other potential solutions, such 

as providing priority to orders that commit to not 

changing or canceling for at least one second.41

As we did with the IEX application, we intend to 

monitor the comment process and evaluate the 

newer proposals to ensure that any such proposed 

devices and order types will truly benefit investors 

and serve the public interest.

The Office also has monitored the developments 

in the Tick Size Pilot, a two-year pilot program 

by the national securities exchanges and FINRA 

for widening the minimum quoting and trading 

increments—or “tick sizes”—for stocks of some 

smaller companies.42 The Commission intends to 

use the pilot, which began its rollout in October 

2016, to assess whether wider tick sizes enhance 

the market quality of these stocks for the benefit of 

issuers and investors.43
6 | OFFICE OF THE INVESTOR ADVOCATE

In addition to analyzing active SEC and SRO 

rulemakings, we also monitor the work of the 

Commission’s Equity Market Structure Advisory 

Committee (EMSAC),44 with an eye toward 

championing ideas and concepts that appear 

most likely to enhance equity market structure 

for the benefit of investors. For example, 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 so-called “makertaker” access fees on equity exchanges.45 During 

FY 2016, our Office has reviewed the EMSAC 

recommendation, and we will likely support the 

Commission in implementing a pilot program 

in FY 2017. 

Finally, we note that, in our view, the Commission 

has been effective in using its enforcement powers 

to address a variety of market abuses while 

regulatory reforms have been in the developmental 

stage. During FY 2016, the Commission charged 

and settled actions against two ATS operators, 

focusing attention on the need for transparency 

and fair dealings across all trading venues.46 For 

example, in January 2016, the Commission settled 

with Barclays, alleging that Barclays failed to 

police one of its dark pools for predatory trading 

as promised and did not adequately disclose how 

it classified subscribers or how it used market data 

feeds.47 The Commission also charged and settled 

actions against market intermediaries. One such 

case alleged numerous Market Access violations 

by a broker-dealer, thereby focusing attention on 

the role of gatekeepers in maintaining fair and 

orderly markets.48 In another case, the Commission 

settled an action against Citigroup in July 2016 

for submitting deficient blue sheet data to the 

Commission for 15 years.49 As noted in the order, 

accurate and complete reporting of blue sheet data 

helps the Commission detect unlawful conduct.50

In addition, the Commission charged a variety of 

individuals with market manipulation during the 

Reporting Period, including for spoofing.51 These 

and similar enforcement actions should serve as 

deterrents to other bad actors. 

MUNICIPAL MARKET REFORM

Throughout FY 2016, the Commission and 

relevant SROs took significant strides to enhance 

fixed income markets for investors and other 

market participants. For example, the MSRB 

adopted a rule requiring municipal bond dealers 

to seek ‘best execution’ of customer orders for 

municipal securities.52 The MSRB and FINRA 

have also continued their efforts to enhance the 

Electronic Municipal Market Access system 

(EMMA) and the Trade Reporting and Compliance 

Engine (TRACE), respectively, so investors will 

have better access to pricing and other important 

market information, including new information 

about bank loans by municipal issuers.53

During the Reporting Period, the Office of the 

Investor Advocate made it a priority to review the 

MSRB’s and FINRA’s proposed rules relating to 

the regulation of the fixed income markets and, 

in particular, the municipal market. In total, we 

reviewed 32 such proposals covering a wide range 

of issues.54 During our review, we considered the 

impact on investors of each proposed rule, and 

we engaged in numerous discussions with relevant 

SRO staff, Commission staff, and interested 

industry participants.

In four instances during the Reporting Period, the 

Office issued public recommendations related to 

the fixed income and municipal markets. One of 

these comment letters responded to a proposal to 

lengthen the term of service on the Board of the 

MSRB, and the remaining three comment letters 

related to post-trade price transparency. 55

MSRB Board Member Term

During the preceding fiscal year, we opposed 

a MSRB proposal to modify the standard of 

independence for the Public Investor Representative 
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 7

Board member on the MSRB.56 In a comment letter 

filed in Fiscal Year 2015, the Investor Advocate 

objected to the change but encouraged the MSRB 

to consider two potential alternatives—one of 

which was changing the length of MSRB Board 

members’ service in order to allow Board members 

to develop the institutional knowledge and 

experience required for fully engaged and effective 

oversight of the MSRB.57

As we suggested, on October 5, 2015, the MSRB 

announced that it would not pursue changes to the 

standard for independence of Public Members.58

Instead, the MSRB proposed amendments to Rule 

A-3 to lengthen the term of MSRB Board service 

from three years to four years.59 In response, we 

filed a comment letter supporting the MSRB’s 

new proposal on October 29, 2015.60 After the 

comment period closed, the MSRB filed the 

proposed rule change with the Commission, and 

it was approved on March 17, 2016.61

Post-Trade Price Transparency

For several years, the MSRB and FINRA have 

explored ways to increase price transparency for 

retail investors who engage in the purchase or sale 

of fixed income securities. In 2014, the MSRB 

and FINRA released for comment companion 

proposals to require the disclosure of pricing 

reference information on customer confirmations.62

Then, after receiving public comments, the 

MSRB and FINRA issued new proposals on 

September 24, 2015, and October 12, 2015, 

respectively.63 The new MSRB proposal changed 

both the methodology for calculating the pricing 

information to be disclosed on the customer 

confirmation and limited the disclosure requirement 

to transactions occurring in a shortened two-hour 

window.64 The new FINRA proposal made certain 

changes but retained the original basic approach. It 

proposed requiring pricing disclosure based upon 

a reference transaction, and it retained the full 

trading day threshold for disclosure.65

The Office of the Investor Advocate supported 

aspects of each of these contrasting proposals.66 In 

a comment letter dated December 11, 2015, that 

was jointly addressed to the MSRB and FINRA, 

the Office strongly supported the MSRB’s proposed 

mark-up disclosure using the prevailing market 

price (PMP) and expressed a clear preference for 

FINRA’s same trading day threshold.67 We also 

urged the MSRB and FINRA to adopt consistent 

rules in order to avert investor confusion that 

could be caused by different pricing disclosures for 

different parts of the fixed income markets.68

On February 18, 2016, the MSRB requested 

comment on proposed guidance for determining 

the PMP for purposes of mark-up disclosure.69

In a comment letter dated March 31, 2016, we 

generally supported the guidance, and we noted the 

apparent harmony between the MSRB’s proposed 

PMP guidance and FINRA’s existing guidance 

for calculating the PMP of other fixed income 

securities.70 However, we highlighted a significant 

concern with how the PMP may be determined in 

circumstances involving non-arm’s-length affiliate 

transactions, and we offered potential solutions for 

the MSRB to consider prior to filing the proposed 

rule changes with the Commission.71

On August 15, 2016, and September 7, 2016, 

respectively, FINRA and the MSRB filed proposed 

rule changes with the Commission to require 

disclosure of mark-ups and mark-downs to 

retail customers for certain transactions in fixed 

income markets.72 These proposed rule changes 

incorporated many suggestions made by the Office 

of the Investor Advocate and generally followed 

our recommended course of action. Notably, the 

proposed rule changes addressed the four key 

issues identified by the Office in earlier comment 

letters—consistency of approach by the MSRB and 

FINRA, incorporating a full trading day disclosure 

threshold, utilizing PMP-based disclosure, and 

requiring fixed income dealers to look through 
8 | OFFICE OF THE INVESTOR ADVOCATE

non-arm’s-length transactions with affiliates 

when calculating PMP.

The Office of the Investor Advocate believes the 

MSRB’s and FINRA’s proposed rule changes will 

enhance post-trade pricing disclosure in fixed 

income markets and will greatly benefit retail 

investors. Accordingly, after the Reporting Period, 

the Office submitted a formal recommendation to 

the Commission, encouraging them to approve the 

proposed changes to MSRB and FINRA rules.73

In addition to advocacy through comment letters, 

the Investor Advocate and staff attend and 

participate in conferences and events related to 

the fixed income markets. During FY 2016, for 

example, the Investor Advocate and staff attended 

the MSRB Municipal Securities Regulator Summit 

on August 25, 2016. At the Summit, the Investor 

Advocate participated on a panel highlighting 

investor protection issues in fixed income markets 

for seniors and vulnerable adults. The Investor 

Advocate also provided the closing remarks of the 

summit, during which he pointed out a troubling 

trend toward greater concentration of municipal 

securities ownership.74

EFFECTIVE DISCLOSURE

As mentioned in our prior reports, the Commission 

has undertaken a comprehensive Disclosure 

Effectiveness Initiative to review and modernize 

public company reporting requirements in 

Regulation S-K and Regulation S-X. The disclosure 

requirements pertain to information found in 

periodic and current reports, including Forms 

10-K, 10-Q, and 8-K, as well as proxy statements. 

The initiative is, at least in part, responsive to 

congressional mandates found in the Jumpstart 

Our Business Startups (JOBS) Act of 201275 and 

the Fixing America’s Surface Transportation (FAST) 

Act of 2015.76 The JOBS Act introduced a suite 

of exemptions from disclosure and capital-raising 

requirements for smaller companies, and the 

Commission has completed all of its mandatory 

rulemaking under the JOBS Act. The more recent 

FAST Act requires the Commission to revise 

Regulation S-K “to further scale or eliminate

requirements of regulation S-K, in order to reduce 

the burden on emerging growth companies, 

accelerated filers, smaller reporting companies, 

and other smaller issuers, while still providing all 

material information to investors,” and to eliminate 

provisions that are “duplicative, overlapping, 

outdated, or unnecessary.”77 The requirement to 

make revisions would not apply to provisions for 

which the Commission determines that further 

study is necessary to determine their efficacy.78

In some respects, the Disclosure Effectiveness 

Initiative is broader in its objectives and 

scope than is mandated by the JOBS Act or 

the FAST Act. These broader objectives are 

reflected in a concept release that was published 

on April 15, 2016, on modernizing business and 

financial disclosure requirements in Regulation 

S-K (S-K Concept Release).79 In the S-K Concept 

Release, the Commission outlined the statutory 

framework of its disclosure regime and described 

materiality, as formulated in seminal Supreme 

Court decisions, as the linchpin of that framework. 

The Commission went on to discuss and request 

public comment on the informational needs of 

investors in multiple areas. 

The S-K Concept Release could be considered 

the cornerstone of the Disclosure Effectiveness 

Initiative. However, during the Reporting Period, 

there have been several other rulemakings that 

concern various aspects of public company 

reporting requirements. 

• On January 13, 2016, the Commission 

adopted rules revising registration statement 

forms for emerging growth companies 

and smaller reporting companies. These 

congressionally mandated rules80 revised Forms 

S-1 and F-1 to provide that as long as emerging 

growth companies’ registration statements 
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 9

include all required financial information at 

the time of the offering, they will be allowed 

to omit certain historical period financial 

information prior to the offering. In addition, 

the rules revised Form S-1 to allow smaller 

reporting companies to use incorporation 

by reference for future filings the companies 

make under the federal securities laws after the 

registration statement becomes effective.81

• On May 3, 2016, the Commission adopted 

rules related to the thresholds for registration, 

termination of registration, and suspension of 

reporting under Exchange Act Section 12(g).82

The Commission adopted the amendments in 

order to conform to statutory changes made in 

Title V and Title VI of the JOBS Act and Title 

LXXXV of the FAST Act.83

• On June 1, 2016, the Commission adopted a 

congressionally mandated rule84 that allows 

Form 10-K filers to provide a summary of 

business and financial information contained 

in the annual report. The rule provides filers 

with flexibility in preparing the summary, 

although those opting to provide it must 

include hyperlinks to the related, more detailed 

disclosure in the Form 10-K.85

• On June 16, 2016, the Commission proposed 

rules to update the disclosure requirements 

for mining companies currently found in Item 

102 of Regulation S-K and related guidance in 

Industry Guide 7.86

• On June 27, 2016, the Commission proposed 

amendments that would increase the financial 

thresholds in the “smaller reporting company” 

definition. The proposal would expand the 

number of companies that qualify as smaller 

reporting companies, which are subject 

to scaled back disclosure requirements in 

Regulation S-K and Regulation S-X.87

• On July 13, 2016, the Commission proposed 

amendments to eliminate provisions thought 

to be redundant, overlapping, outdated, 

or superseded in light of other changes to 

Commission disclosure requirements, U.S. 

Generally Accepted Accounting Principles, 

International Financial Reporting Standards, 

or technology developments. The provisions 

impacted are mainly in Regulation S-X.88

• On August 25, 2016, the Commission 

published a request for public comment on 

disclosure requirements in Subpart 400 of 

Regulation S-K, including those relating 

to management, certain security holders, 

executive compensation, and corporate 

governance matters.89

• On August 31, 2016, the Commission 

proposed rule and form amendments that 

would require registrants to include hyperlinks 

to exhibits in their filings, so as to make it 

easier to locate exhibit documents.90

The Commission also worked to satisfy another 

mandate of the FAST Act, which required the 

Commission to deliver a report to Congress by 

November 28, 2016. The report was required to 

contain “specific and detailed recommendations on 

modernizing and simplifying the requirements in 

Regulation S-K in a manner that reduces the costs 

and burdens on companies while still providing all 

material information.”91 Furthermore, the FAST 

Act requires recommendations on ways to improve 

the “readability and navigability” of disclosure 

documents and to “discourage repetition and the 

disclosure of immaterial information.”92 These 

recommendations will carry unusual importance 

because the FAST Act further requires that the 

Commission propose rules to implement the 

report’s recommendations no later than 360 days 

following the report’s submission to Congress.93
10 | OFFICE OF THE INVESTOR ADVOCATE

As described above, in addition to finalizing 

previous rulemakings, the Commission released for 

public comment six new proposals between April 

15 and August 31, 2016. These are important and 

substantive proposals that could significantly revise 

the disclosure requirements of public companies 

and, in turn, impact investors and the markets. 

Fortunately, our Office was able to add a staff 

attorney in May 2016 to focus on matters involving 

public company disclosure and corporation 

finance, and we are working hard to analyze the 

proposals and provide feedback to the Commission 

and Division rulemaking staff. However, we are 

concerned that the sheer volume of proposals—

totaling 1,084 pages and 577 questions—has made 

it difficult for investors to provide meaningful input 

in the public comment process.

To address the inadequacies of the public comment 

process, which tends to elicit comment from parties 

who may bear the costs or burdens of regulation 

but underrepresent the views of those who 

benefit from regulation, we have encouraged the 

Commission to be more proactive in determining 

the needs of investors. For our part, we have 

begun conducting investor outreach to determine 

how a variety of investors make decisions to buy 

and sell securities or exercise their voting rights. 

Among other things, we are attempting to learn 

the information sources they rely upon and the 

data points that are most useful to them. These 

discussions will help to inform our thinking, and 

ultimately our advocacy, regarding the proposed 

changes to the disclosure requirements. In addition, 

we have laid the groundwork for the Commission 

to conduct more investor testing in this area, 

utilizing focus groups and other methods to 

determine what is actually in the best interests 

of investors. 

In addition to this outreach, we have worked 

to facilitate informed investor comment on 

proposed changes that are important yet dauntingly technical. For example, the release dated 

July 13, 2016, proved to be especially challenging, 

so we held a number of conversations, individually 

and jointly, with a group of interested investors, 

professors of accounting, other accounting experts, 

and members of the SEC Investor Advisory 

Committee. Then, on September 21, 2016, our 

Office facilitated a conference call among these 

individuals and relevant Commission staff. 
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 11

This afforded the group an opportunity to ask 

questions about the release and express their 

concerns. Among other things, they expressed 

concern that the comment period was too short 

for a proposal of this size and complexity. Shortly 

thereafter, the Commission approved a 30-day 

extension of the comment period, and we anticipate 

that several of these individuals may follow up 

with comment letters to the Commission after the 

Reporting Period. 

Many of the proposals before the Commission 

appear to pit the informational needs of investors 

against the costs and burdens to the companies 

who provide the disclosure. However, we believe 

that technology, particularly the use of structured 

data, presents an opportunity to improve the 

delivery of information to investors while 

decreasing burdens on the companies that must 

provide the disclosure.94 Chair Mary Jo White has 

created a working group to explore enhancements 

to disclosure delivery, and the working group 

includes staff members from our Office.95

SHAREHOLDER RIGHTS AND 

CORPORATE GOVERNANCE

Director Elections

Shareholders have the right to participate in the 

election of directors and vote on certain matters 

affecting the corporation. However, given the 

impracticality of attending annual meetings, the 

primary way for shareholders to learn about 

matters to be decided on at a meeting and to vote 

on the election of directors is through the proxy 

process. While shareholder rights stem primarily 

from state corporate law,96 it is federal law that 

governs the solicitation of any proxy or consent 

or authorization with respect to any security 

registered pursuant to Exchange Act Section 12.97

Under the current proxy rules, if a shareholder 

wishes to nominate a candidate to a company’s 

board of directors without the acquiescence 

of the existing board members and executive 

management, the shareholder may prepare 

and file a registered proxy statement under

Exchange Act Section 14 and disseminate its 

own proxy material to its fellow shareholders. 

There is no rule permitting a dissident shareholder 

to include a nominee and supporting material 

in the company’s proxy statement that is sent 

at the company’s expense. In 2011, the U.S. 

Court of Appeals for the D.C. Circuit vacated 

precisely such a rule on the grounds that the 

Commission had failed to conduct an adequate 

cost-benefit analysis.98

Since that defeat, shareholders have sought to 

institute proxy access on a company-by-company 

basis through bylaw amendment proposals. In 

2014, a consortium of pension funds and other 

institutional investors started the Boardroom 

Accountability Project, a corporate governance 

initiative centered on the submission of proxy 

access bylaw proposals at annual meetings 

pursuant to Exchange Act Rule 14a-8.99 These 

resolutions typically request a proxy access bylaw 

permitting shareholders that have collectively held 

three percent of the company for at least three 

years to nominate up to 25 percent of the board 

using the company’s proxy statement and card. 

Previously, we reported on an attempt by Whole 

Foods, Inc. to exclude from its company proxy 

statement a proposed proxy access bylaw 

amendment on the grounds that the shareholder 

proposal directly conflicted with the company’s 

own proposal.100 That dispute led to a review of 

the proper scope and application of Exchange Act 

Rule 14a-8(i)(9) by the Division of Corporation 

Finance, which culminated in a publication of the 

Division’s informal views on October 22, 2015.101

Notably, the Division revised its interpretation of 

the “directly conflicts” basis for exclusion in a way 

that would have been favorable to the shareholder 

proponent in the Whole Foods dispute. According 

to the Division, for Rule 14a-8(i)(9) “a direct 
12 | OFFICE OF THE INVESTOR ADVOCATE

conflict would exist if a reasonable shareholder 

could not logically vote in favor of both proposals, 

i.e., a vote for one proposal is tantamount to a 

vote against the other proposal.”102 That would 

not be the case for proposals that generally seek 

a similar objective but propose different means of 

accomplishing the objective.103

By the end of the Reporting Period, more than 

250 companies had adopted some form of proxy 

access since the launch of this corporate governance 

initiative.104 According to a Wall Street Journal

report, 40 percent of S&P 500 companies had 

adopted proxy-access provisions as of August 

31, 2016, up from just five percent in 2015.105

It remains to be seen how these provisions 

will be used.

Now that many companies have adopted some 

form of proxy access, shareholders in the most 

recent proxy season proposed modifications to 

make the access provisions less restrictive by, for 

example, removing the limit on the number of 

shareholders that may aggregate shares to reach 

the ownership threshold. Between January 1, 

2016 and September 14, 2016, 54 companies 

submitted no-action requests seeking to exclude 

the proposed modifications on the grounds that 

the companies had substantially implemented 

proxy access, referring to the basis for exclusion 

provided in Exchange Act Rule 14a-8(i)(10).106

SEC staff granted the majority of those requests.107

For a company seeking to exclude a shareholder 

proposal, “substantial implementation” entails a 

less exacting comparison than “directly conflicts.” 

On October 26, 2016, following this Reporting 

Period, the Commission proposed amendments 

to the proxy rules that would require the use of 

universal ballots in contested director elections.108

Briefly, universal ballots would enable shareholders 

to vote for their preferred combination of 

management and shareholder nominees, just as 

they could if they attended the meeting and voted 

in person. This differs from proxy access in that 

it would allow a dissident shareholder to have its 

competing nominee(s) listed on the company’s 

proxy card (and vice versa), but the dissident 

shareholder would not be allowed to include 

information about its nominee(s) in the company’s 

proxy statement. This means that the shareholder 

would have to prepare and disseminate a separate 

proxy statement and solicit other shareholders at 

its own expense. Our next Report on Activities will 

provide more details on this rulemaking proposal. 

Exchange Listing Standards

During the Reporting Period, we have also 

monitored proposals by national securities 

exchanges that deal with shareholder rights 

and corporate governance. We believe that an 

exchange’s qualitative listing standards, such as 

the standards relating to audit committees, 

independent director oversight of executive 

compensation, a mandatory code of conduct, 

shareholder meetings (including proxy solicitation 

and quorum), review of related party transactions, 

shareholder approval (including voting rights), 

and disclosure policies, should be designed to 

help ensure that companies trading on a national 

securities exchange will adequately protect the 

interests of public shareholders. 

At the beginning of the Reporting Period, 

the Investor Advocate made his first formal 

recommendation to the Commission on this very 

issue. On October 16, 2015, the Investor Advocate 

recommended disapproval of a proposed rule 

by NYSE that would exempt certain early stage 

companies from having to obtain shareholder 

approval before selling additional shares to 

insiders and other related parties.109 As more fully 

described in the recommendation,we believed that 

the NYSE’s proposed rule change was inconsistent 

with investor protection because it deprived 

existing shareholders of an important right without 

significant benefit. However, the Commission 

ultimately approved the proposed rule change, 
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 13

finding that the proposal was consistent with the 

Exchange Act despite the potential for harmful 

dilution, reasoning that the potential benefits 

to small issuers and fair competition between 

exchanges offset the harm to investors.110

In November 2015, our Office began reviewing a 

Solicitation of Comments by Nasdaq’s Listing and 

Hearing Review Council concerning shareholder 

approval rules.111 Nasdaq was broadly asking 

whether various provisions of its current rules—

which generally require companies to obtain 

approval from shareholders prior to issuing 

securities in connection with certain acquisitions, 

equity-based compensation plans, changes of 

control and certain private placements—continue 

to serve their original shareholder protection 

purpose and otherwise still ‘make sense’ given the 

evolution in the capital markets and securities laws. 

In January, representatives from Nasdaq discussed 

the request for comment at the SEC’s Investor 

Advisory Committee meeting.112 After our review 

and consideration of concerns expressed at the 

meeting, we submitted a comment letter to Nasdaq 

on February 12, 2016, to express our belief that 

shareholder approval constitutes an important 

element in the corporate governance framework 

that helps protect investors and builds trust in 

markets.113 In our letter, we expressed concern 

that board or independent committee approval 

may not be an effective substitute for approval by 

shareholders, whose interests are directly impacted 

by economic and ownership dilution, and that 

lowering Nasdaq’s qualitative listing standards 

could exacerbate a troubling “race to the bottom” 

among listing exchanges, whereby the exchanges 

lower their listing standards in order to attract 

more companies to list with them.

Motivated by those concerns, our Office began 

researching the history of exchange listing 

standards, and the Investor Advocate gave a 

public speech on February 19, 2016, to bring 

more attention to the Office’s findings.114 As 

noted in the speech, it appeared that over the last 

decade, exchange listing standards, especially 

their quantitative standards, have tended to drift 

downward, pulled by the exchange’s pursuit 

of profits over investor protection. The speech 

concluded by encouraging Commission staff to 

consider this broader context in its review of future 

rule filings and encouraging the exchanges to 

resist the temptation to engage in this race to the 

bottom, as it would otherwise raise questions about 

whether for-profit exchanges ought to be involved 

in self-regulation. Going forward, we will continue 

to monitor and evaluate SRO proposals concerning 

exchange listing standards with an eye towards 

preserving and enhancing the protections such 

standards afford investors. 

In April 2016, NYSE proposed to adopt generic 

listing standards to permit the exchange to list 

“equity investment tracking stocks” that would 

seek to track the performance of another listed 

company, but with limited voting rights. In effect, 

shareholders of the tracking stock will have no 

voice in the corporate governance of the underlying 

operating company and no direct claim on the 

assets if the company should become distressed.115

We understand that this structure became popular 

in the late 1990s, but fell out of favor, in part 

because it can create potential conflicts of interest 

between holders of the two separate stocks.116 We 

analyzed the proposal prior to Commission action 

to ensure that investors would be properly advised 

of the risks, and we were pleased to see the NYSE 

submit several amendments committing to: 

(1) distribute information to brokers concerning the 

special characteristics and risks of tracking stocks 

in connection with a suitability determination; 

(2) monitor activity in such stocks to identify 

and deter any potential improper trading activity; 

and (3) enhance its surveillance procedures around 

trading in such stocks.117 In addition, the NYSE 

committed to conduct a compliance review over 

the initial two-year period of listing such a tracking 

stock and will provide the Commission with two 
14 | OFFICE OF THE INVESTOR ADVOCATE

reports in order to address the relationship 

between the equity investment tracking stock 

and the underlying operating company and 

potentially identify any enhancements to the 

listing standards.118 We intend to continue 

monitoring the listing of tracking stocks on 

the NYSE and other exchanges.

FINANCIAL REPORTING 

AND AUDITING

High-quality financial reporting is critically 

important to the efficient functioning of our 

capital markets, and it is one of the reasons that 

our markets are often called the gold standard or 

the envy of the world. In order to deliver this level 

of financial reporting, we rely upon a system of 

sound accounting and auditing practices, ethical 

gatekeepers, and appropriate checks and balances.

Over the past fiscal year, our Office has monitored 

and, on occasion, made recommendations on 

critical matters related to financial reporting. 

These range from a Public Company Accounting 

Oversight Board (PCAOB) proposal to enhance the 

independent auditor’s report, which we supported, 

to a Congressional bill to scale back requirements 

of auditor attestation concerning the effectiveness 

of internal control over financial reporting (ICFR), 

which we opposed. 

On May 11, 2016, the PCAOB requested comment 

on proposed changes to the report that auditors are 

required to prepare when conducting an audit of a 

public company. During the comment period, we 

submitted a letter to the PCAOB in support of its 

reproposed standard.119 In particular, we expressed 

strong support for a proposed requirement that 

the audit report include communication of critical 

audit matters that required especially challenging, 

subjective, or complex auditor judgment, and a 

description of how the auditor responded to those 

matters. In addition, we supported disclosure of 

auditor’s tenure and measures to improve the form 

and enhance the usability of audit reports. 

Effective internal control over financial reporting—

and attestation by an independent accountant as 

to the effectiveness of such controls—promotes

reliable financial reporting, strengthens public 

confidence, and encourages investment in our 

capital markets. As James V. Schnurr, then the 

SEC Chief Accountant, explained late last year, 

“Management’s ability to fulfill its financial 

reporting responsibilities depends, in large part, 

on the design and effectiveness of internal control 

over financial reporting.”120 In our view, ICFR and 

auditor attestation provide investors with a critical 

window into the competence of a company’s 

management, the integrity of its financial reporting, 

and the quality and sustainability of its earnings. 

Moreover, the importance of ICFR will only grow 

as a result of new accounting standards.121

Given the importance of ICFR and auditor 

attestation, we have been particularly sensitive to 

any efforts to reduce the scope of either. Therefore, 

on May 23, 2016, we sent a letter to Congress 

expressing our opposition to H.R. 4139, a bill 

that would allow smaller public companies to 

avoid the auditor attestation requirement of the 

Sarbanes-Oxley Act for up to 10 years following 

an initial public offering.122 We continue to believe 

that having an independent auditor attest to the 

effectiveness of ICFR promotes reliable financial 

reporting, strengthens investor confidence, and 

ultimately reduces the cost of capital for businesses. 

During the Reporting Period, our Office also has 

continued to monitor developments involving 

two proposals that the Financial Accounting 

Standards Board (FASB) made in September 2015. 

These proposals relate to how to determine the 

“materiality” of certain matters, which would 

trigger a disclosure requirement. The first proposal 

would affect the conceptual framework that 

FASB uses as a guide in its own decision-making 

process.123 This proposal, according to FASB, 

would clarify that the concept of materiality was 

not intended to conflict with the legal definition.124
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 15

The second proposal was an Accounting Standards 

Update that was intended to clarify how companies 

and not-for-profit entities consider materiality in 

notes to the financial statements.125

According to FASB, the amendments were 

not intended to alter any specific disclosure 

requirements, but would help entities omit nonmaterial disclosures and focus instead on relevant, 

material information.126 Despite these assurances, 

however, several investors and interested parties, 

including the SEC Investor Advisory Committee, 

expressed concerns that the changes would allow 

issuers to reduce their level of financial reporting 

and their transparency to investors.127

We understand that FASB intends to hold a public 

roundtable in the coming months to discuss this 

topic. During the Reporting Period, we actively 

engaged with FASB Board members and Financial 

Accounting Foundation (FAF) officials to discuss 

the issue, and we expect to continue the dialogue 

on behalf of investors. 

FIDUCIARY DUTY

Many individual investors rely on broker-dealers 

and investment advisers to help them manage 

their investments and meet their financial 

goals.128 Generally, these investors expect that 

the investment advice they receive is provided in 

their best interest.129 Some investors may not be 

aware, however, that broker-dealers and investment 

advisers are subject to different standards 

under federal law when providing advice about 

securities.130 Indeed, many investors are confused 

about the different standards of care that apply to 

investment advisers and broker-dealers with respect 

to the investment advice they provide.131

Under the Investment Advisers Act of 1940, an 

investment adviser is considered a fiduciary of its 

clients.132 The fiduciary standard encompasses the 

duties of loyalty and care.133 The duty of loyalty 

requires an investment adviser to serve the best 

interests of its clients, which includes an obligation 

not to subordinate a client’s interests to its own.134

The duty of care requires an investment adviser to 

“make a reasonable investigation to determine that 

it is not basing its recommendations on materially 

inaccurate or misleading information.”135 In 

practical terms, the fiduciary standard requires an 

adviser with a material conflict of interest to either 

eliminate that conflict or fully disclose to its clients 

all material facts relating to the conflict.136

Broker-dealers operate under a different regulatory 

regime from that of investment advisers. Brokerdealers are subject to statutory, Commission, and 

SRO requirements designed to promote business 

conduct that protects customers from abusive 

practices. One such requirement is an obligation 

of “suitability,” which generally requires a brokerdealer to make recommendations that are suitable 

for a customer in light of the customer’s risk 

tolerance, liquidity needs, investment horizon, 

and other factors that are specific to the individual 

customer.137 Broker-dealers also are required, under 

certain circumstances, to disclose material conflicts 

of interest to their customers—in some cases, at 

the time the transaction is completed138—and the 

federal securities laws and FINRA rules prohibit 

broker-dealers from participating in certain 

transactions involving particularly acute potential 

conflicts of interest.139

As described more fully in our Report on 

Objectives for Fiscal Year 2016, the 

Commission has been considering whether to 

apply a fiduciary standard to broker-dealers.140

For instance, Section 913 of the Dodd-Frank 

Act required the Commission to conduct a study 

analyzing the obligations of brokers, dealers, 

and investment advisers,141 and SEC staff issued 

the resulting study on January 21, 2011.142

That study recommended, among other things, 

that the Commission implement a uniform 

fiduciary standard for broker-dealers and 

investment advisers.
16 | OFFICE OF THE INVESTOR ADVOCATE

On March 1, 2013, the Commission issued 

a request for data and other information, in 

particular quantitative data and economic analysis, 

relating to the benefits and costs that could result 

from various alternative approaches regarding 

the standards of conduct and other obligations 

of broker-dealers and investment advisers.143 The 

Commission sought this information to inform its 

consideration of alternative standards of conduct 

for broker-dealers and investment advisers when 

providing personalized investment advice about 

securities to retail customers, as well as to inform 

its consideration of “potential harmonization” of 

certain other aspects of the regulation of brokerdealers and investment advisers.144

On April 6, 2016, the U.S. Department of 

Labor issued a final regulation defining who is a 

“fiduciary” of an employee benefit plan under the 

Employee Retirement Income Security Act of 1974 

as a result of providing investment advice to such a 

plan or its participants or beneficiaries.145 The final 

rule also applies to the definition of “fiduciary” of 

a plan (including an individual retirement account 

(IRA)) under the Internal Revenue Code of 1986.146

In addition, the final rule treats persons who 

provide investment advice or recommendations for 

a fee or other compensation with respect to assets 

of an employee benefit plan or IRA as fiduciaries 

in a wider array of advice relationships.147 We 

continue to monitor developments associated with 

the implementation of these regulations.

On September 12, 2016, SEC Chair White 

announced that she and her fellow Commissioners 

were reviewing a staff report regarding a potential 

fiduciary duty rulemaking proposal.148 She stated 

that, although she strongly supported a fiduciary 

duty rule, such a proposal was not imminent.149

Earlier, while endorsing a uniform fiduciary 

standard for broker-dealers and investment 

advisers, Chair White stated that such a rulemaking should be a principles-based standard 

rooted in the current fiduciary standard for 

investment advisers.150 At the same time, 

Chair White acknowledged that there were 

complexities and challenges that accompany 

such a rulemaking.151

We have reviewed the internal staff report 

regarding a potential fiduciary duty rulemaking and 

have discussed it with staff and Commissioners. 

During the Reporting Period, we did not submit 

any formal written recommendations related to 

this issue.

RETIREMENT READINESS

According to the Census Bureau, the age 

65-and-older demographic in the United States is 

likely to increase by more than 50 percent—

to approximately 74 million—between 2015 

and 2030.152 Based on current trends, this age 

group will likely represent more than 20 percent 

of the total U.S. population by 2030.153 This 

development promises to have a significant and 

wide-ranging impact on a number of policy areas 

in the years ahead.

For many Americans, the prospect of a comfortable 

retirement remains an elusive goal. For example, 

a recent Gallup survey found that “Americans 

continue to be most worried about not having 

enough money for retirement, with 64 percent 

saying they are ‘very worried’ or ‘moderately 

worried’ about this.”154 According to Gallup, since 

it began polling Americans in 2001 regarding their 

financial concerns, “a majority have continually 
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 17

been worried about not being able to afford 

retirement—the top overall concern in each of 

those sixteen years.”155 Another recent Gallup 

survey concluded that “many working Americans 

simply can’t afford to retire.”156

A recent study by the U.S. Government 

Accountability Office (the “GAO Retirement 

Study”) found, among other things, that Social 

Security furnishes most of the retirement income 

for approximately half of households age 65-andolder.157 This trend may continue, as the same 

study found that 52 percent of households age 

55-and-older have no retirement savings in a 

defined contribution plan or individual retirement 

account, and nearly 30 percent of households age 

55-and-older have no retirement savings and no 

defined benefit (e.g., pension) plan.158 Findings like 

these prompt some to warn of a “retirement crisis” 

and to caution that “millions of Americans may be 

forced to muddle through their final years partially 

dependent on others for financial support and to 

accept a standard of living significantly below that 

which they had envisioned.”159

In our Report on Objectives for Fiscal Year 2016, 

we announced our intention to study the issue of 

Americans’ readiness for retirement. During the 

Reporting Period, we reviewed multiple studies 

and met with a cadre of researchers to explore the 

question of whether, or to what extent, Americans 

will be able to maintain their accustomed standard 

of living during their retirement years. We have 

also considered several policy recommendations 

that have been advanced by researchers and other 

advocates. The following chart summarizes some 

of the factors that, in their view, have contributed 

to the lack of retirement readiness, as well as their 

proposed policy recommendations.

SAMPLING 

OF EXPERTS ISSUE(S) IDENTIFIED

SELECTED POLICY 

RECOMMENDATIONS

Brookings • Savings rates have not kept up with • Expand Social Security through 

Institution160 increases in longevity tax increases

• Implement auto-enrollment 

in retirement plans

• Require all businesses to offer 

workplace savings plans

Bipartisan • Lack of access to workplace • Improve access to workplace 

Policy Center161 retirement plans

• Insufficient savings for short-term needs

• Risk of outliving retirement savings

• Failure to build and use 

home equity

• Lack of personal finance knowledge

• Problems with Social Security

retirement plans, especially for 

small businesses

• Implement auto-enrollment in 

multiple accounts

• Integrate lifetime income features 

in plans

• Facilitate the use of home equity 

for retirement consumption

• Improve financial education 

• Strengthen Social Security’s finances 

and modernize the program
18 | OFFICE OF THE INVESTOR ADVOCATE

These issues are discussed at length in a white paper 

authored by staff of our Office.164 While we have 

no immediate plans to recommend specific action 

by the SEC, our research will inform our thinking 

on rulemakings or other initiatives that may impact 

senior investors.

MILLENNIALS

In addition to the topic of retirement readiness, 

we also conducted research concerning the Millennial generation. Our intention was to examine 

economic issues germane to Millennials, including 

their financial literacy, the manner and extent in 

which they participate in financial markets, and 

the differences between Millennials and preceding 

generations. Our work in this area will be ongoing, 

as we believe it is important to consider whether 

proposed changes to laws, policies, and regulations 

are forward-looking and anticipate the needs of a 

new generation of investors. 

The Investor Advocate included a discussion of 

Millennial investors and their unique needs in 

a speech delivered November 19, 2016.165 The 

research we conducted during the Reporting Period 

will provide a foundation for our continuing advocacy efforts.

SAMPLING 

OF EXPERTS ISSUE(S) IDENTIFIED

SELECTED POLICY 

RECOMMENDATIONS

Center for • Increased life expectancy • Encourage workers to work longer 

Retirement • Declining Social Security to increase Social Security benefits 

Research at replacement rates and grow assets 

Boston College162 • 

• 

• 

Shift from defined benefit to defined 

contribution retirement plans

Increased out-of-pocket health 

care costs for retirees

Decline of real interest rates

• 

• 

• 

Permit workers to contribute to 

retirement plans for a longer period

Implement auto-enrollment for 

all workers

Use home equity by downsizing 

or taking out a reverse mortgage

Ghilarducci • Insufficient savings by those • All employers with more than 

and James163

• 

• 

• 

• 

• 

with access to workplace defined 

contribution plans

Long-term retirement savings used 

to cover short-term needs (leakage)

Existing system offers no costeffective means to convert savings 

to life-long income

Defined contribution participants 

experience sub-optimal returns on 

investments

Investments in 401(k)s and IRAs 

have a short-term focus rather than 

a long-term outlook

Current system favors the wealthy 

through higher tax subsidies

• 

• 

• 

five employees must provide a 

pension or Guaranteed Retirement 

Account (GRA)

Shift all uncovered workers, and 

roll workers with retirement plans, 

into GRAs

Annuitize benefits

Offer incentives to workers to 

remain in the work force
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 19

PROBLEMATIC INVESTMENT 

PRODUCTS AND PRACTICES

Among

Advo

Sectio

 the statutory duties of the Investor 

cate enumerated in Exchange Act 

n 4(g)(4), the Investor Advocate is 

required to identify problems that investors have 

with financial service providers and investment 

products. Exchange Act Section 4(g)(6)(B) mandates 

that the Investor Advocate, within the annual Report 

on Activities, shall provide a summary of the most 

serious problems encountered by investors during 

the preceding fiscal year. The statute also requires 

the Investor Advocate to make recommendations for 

such administrative and legislative actions as may be 

appropriate to resolve those problems.166

To determine the most serious problems related to 

financial service providers and investment products, 

staff of the Office of the Investor Advocate reviewed 

information from the following sources:

• Investor Alerts and Bulletins issued by the SEC, 

FINRA, and the North American Securities 

Administrators Association, Inc. (NASAA) 

during FY 2016;

• Discussions and correspondence with 

SRO staff;

• SEC enforcement actions and 

FINRA disciplinary actions during the 

Reporting Period;

• The 2016 NASAA Enforcement Report;167 and

• SEC and SRO staff reports providing 

guidance and interpretations relating to 

investment products.

The majority of municipal securities are owned 

by retail investors, so we pay close attention to 

developments in that market and the activities of 

the MSRB. In a letter dated November 3, 2016, the 

MSRB identified four areas of particular concern 

“given their potential adverse effect on retail 

investors:” (1) Disclosure practices; (2) Price fairness 

and transparency; (3) Types of ownership; and 

(4) Senior investor protection. They also indicated 

the steps they are taking to address these concerns.168
20 | OFFICE OF THE INVESTOR ADVOCATE

SEC169 NASAA170 FINRA171

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

Internet Fraud, Including Social 

Media Investment Schemes

Investment Scams & Schemes 

Including Government Impersonator Schemes, Zika Virus 

Investment Scams, and Natural 

Disaster Investment Scams

Short Sales

Investment Fees & Expenses

Variable Annuities

Exchange Traded Notes (ETN)

Securities-Backed Lines of 

Credit (SBLOC)

Fraudulent Stock Promotions 

Leading to Pump-and-Dump 

Schemes

Presentation and Reliability of 

Investment Performance Claims

Stop and Stop-Limit Orders

Master Limited Partnerships

Microcap Stocks

Investment Adviser Disclosure 

Practices

Public Non-Traded REITs

Crowdfunding

Affinity Fraud

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

Ponzi Schemes

Internet Fraud, including 

Internet Bulletin Boards

Intermediary or Gatekeeper 

Fraud

Senior Fraud

Real Estate Related Investment 

Fraud

Oil and Gas Investment 

Fraud

Unregistered Products/

Unlicensed Salesmen

Promissory Notes

Affinity Fraud

Escheatment

Employment-Based, Fifth 

Preference (EB-5) Visa Fraud

Pension Advances

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

• 

Advance Fee Scams

Binary Options

Investment Scams & Schemes 

Including IRS Impersonation 

Scams, Telephone Scams, Fake 

Check Scams, Lottery Scams, 

and Recovery Service Scams

Securities-Backed Lines of 

Credit (SBLOC)

Range Accrual Notes

Alternative Mutual Funds

Non-Traded Business Development Companies

Unit Investment Trusts

Proliferation of Share Classes

Identity Theft

High-Yield CD Marketing Ploys

Stock-Based Loan Concerns

Risks Related to Order Types 

Market/Systemic Risk

Public Non-Traded REITs

Crowdfunding Risk

The table above lists certain problematic products 

or practices during FY 2016 as reported by 

the SEC, NASAA, and FINRA. Although not 

exhaustive, the lists reflect some of the concerns 

of these organizations. Details regarding these 

products and practices are available on these 

organizations’ websites.

Each of the products and practices listed above 

presented problems for investors during the 

Reporting Period. Based on our review of the 

resources described above and consultations 

with knowledgeable professionals, however, we 

will highlight two areas of concern: the Simple 

Agreement for Future Equity in crowdfunding 

investments and business development companies.

SIMPLE AGREEMENT FOR 

FUTURE EQUITY IN CROWDFUNDING 

INVESTMENTS

A relatively new investment instrument has been 

developed for use in crowdfunding offerings, in 

which a large number of investors may invest 

relatively small amounts of money in a business. 

The instrument, called a Simple Agreement for 

Future Equity (SAFE), contains certain features that 

differ from the rights and potential returns that an 

average equity investor may expect.172
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 21

A SAFE instrument contains a set of basic funding 

terms for a start-up seeking capital from investors 

who, in turn, receive the promise of future equity. 

A SAFE is structured to allocate equity to investors 

when there is a future valuation event, such as an 

acquisition or an initial public offering. If there 

never is such a valuation event, investors receive 

nothing.173 Moreover, not all valuation events 

trigger an equity issuance. For instance, a recent 

Crowdfund Insider article pointed out that the 

SAFE offered by a major Regulation Crowdfunding 

portal provided that a financing conversion 

occurred under the contract only when the issuer 

closed a future sale of preferred stock.174 The 

article’s authors observed that “a company could 

theoretically raise unlimited amounts of private 

capital selling common stock and distributing 

profits to those investors and the founders via 

dividends without ever triggering a conversion 

of the SAFEs or allowing the SAFE holders to 

participate in those dividend payments.”175

SAFEs are used primarily by early-stage companies 

that tend to be difficult to value because they 

may lack observable or measurable metrics 

of performance. SAFEs defer decisions about 

valuation, liquidation preferences and participation 

rights until later-stage rounds of financing. 

From the company’s perspective, the terms are 

uncomplicated—there are no covenants, veto 

rights, board seats, rights of first refusal or 

co-sale, or other provisions typically negotiated 

by purchasers of preferred or common stock. 

There are no maturity dates or interest payments, 

as might be found in convertible debt. Investors 

are unable to declare default and they are not 

entitled to any of the company’s assets in the 

event of liquidation. In essence, SAFE investors 

have no rights until a valuation event (as defined) 

or sale takes place.176

In our view, the acronym SAFE seems misleading. 

In addition, unless the features of the product are 

explained very clearly, crowdfunding investors 

may not understand the amount of risk they are

assuming, and particularly the possibility that they 

may not readily reap the benefits from investing 

in a successful business venture. Ultimately, 

crowdfunding may become an unattractive 

alternative for investors if their upside potential is 

severely restricted while they take on the heightened 

risk of start-up investing.

We have not yet made any recommendations to the 

Commission concerning this product. However, 

in consultation with the Division of Corporation 

Finance’s Office of Small Business Policy, our Office 

will continue to monitor the development and 

usage of SAFEs. 

BUSINESS DEVELOPMENT COMPANIES

The Investment Company Act of 1940 defines a 

Business Development Company (BDC) as any 

domestic, closed-end company operating for the 

purpose of making investments in small and midsized companies.177 This category of closed-end 

investment company was created by Congress in 

1980 and was designed to foster the growth of 

small companies by enabling managerial assistance 

from the adviser and loosening some of the more 

restrictive Investment Company Act provisions.178

A BDC is generally required to invest at least 

seventy percent of its total assets in securities of 

certain types of companies, including eligible 

portfolio companies (EPC).179 Generally, EPCs are 

small, developing companies in need of capital 

financing but are locked out of the conventional 

capital markets.180 Additionally, BDCs are required 

to make available significant managerial assistance 

to the EPCs.181
22 | OFFICE OF THE INVESTOR ADVOCATE

Typically, BDCs are structured as regulated 

investment companies or limited partnerships 

for tax purposes.182 If a BDC distributes at least 

ninety percent of its taxable income annually to its 

shareholders and meets other source-of-income and 

asset diversification tests, the BDC is exempt from 

federal corporate taxes.183

Most BDCs are publicly traded.184 BDCs use the 

proceeds from selling their stock, in addition to 

the proceeds from bank loans and bond issuances, 

to make loans to EPCs.185 In contrast, there are 

also non-traded BDCs. Non-traded BDCs are 

registered as investment companies with the SEC, 

and therefore their shares can be sold to retail 

investors.186 However, non-traded BDC shares are 

not listed on any public exchange.187

Generally, BDCs attract individual investors seeking 

high yields, steady dividends, or non-investmentgrade debt.188 BDCs provide the opportunity for 

individuals to invest in private companies, an area 

that had once been limited to large institutional 

investors through private equity and venture 

capital funds.189 Additionally, BDCs provide the 

opportunity to diversify investors’ portfolios.190

Non-traded BDCs may be attractive to investors 

who are seeking even higher yields than public 

BDCs as well as the promise of protection from 

market volatility.191

Of course, investing in BDCs is not without risk.192

Analysts indicate that potential risks include 

lending to venture-capital-backed companies, 

buying equity stakes in private companies, and 

focusing on loans to specific sectors such as 

automotive or real estate.193 Analysts further 

indicate that due to the nature of BDCs, which 

invest in small and mid-sized companies, BDCs 

often lend to companies with “junk” status or that 

carry low credit ratings, if rated at all.194 In January 

2013, FINRA highlighted investors’ exposure to 

significant market, credit, and liquidity risks, 

and the risk of over-leveraging their relatively 

illiquid portfolios.195

Non-traded BDCs can carry a higher degree of 

risk than public BDCs.196 Among other things, 

they may fail to provide accurate mark-to-market 

values, be subject to very low liquidity, impose 
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 23

high upfront fees, and present numerous conflicts 

of interest.197 In August 2016, FINRA indicated 

it would make non-traded BDCs an area of focus 

and would seek to better understand how nontraded BDCs are marketed and sold, given their 

increasing popularity.198 In particular, FINRA 

identified the following areas of potential concern: 

increased availability to retail investors, exposure 

to high commissions and fees, illiquidity risks, and 

uncertainty regarding the time-period BDCs will 

hold funds before they are invested.199

In sum, both nontraded and traded BDCs may 

be considered highly volatile.200 Nonetheless, 

depending on the circumstances, BDCs might 

have a place in the overall asset mix of a broadly 

diversified investment portfolio, and the Office 

of the Investor Advocate does not recommend 

changes to the rules or regulations that govern 

these products at this time. We note, though, that 

an investor’s reach for yield can have negative 

consequences, and we believe that it is incumbent 

upon providers of these products to ensure that 

investors understand those risks. 

For their part, investors should conduct thorough 

research and strive to understand the nature of 

BDCs and their risks before deciding to invest 

in them. Investors might also consider seeking 

the advice of registered investment professionals 

who understand their investment objectives and 

tolerance for risk before making investment 

decisions involving BDCs. 

REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 25

INVENTORY OF INVESTOR 

ADVOCATE RECOMMENDATIONS 

AND SEC OR SRO RESPONSES

Purs

4(g

Ad

uant to Exchange Act Section 

)(4), the Office of the Investor 

vocate is required to identify areas 

in which investors would benefit from changes 

in the regulations of the Commission or the 

rules of self-regulatory organizations. To the 

extent practicable, we are also expected to 

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.201

We engage in advocacy for investors in various 

ways. Most often, our written advocacy is in 

the form of a comment letter that is included 

in the public comment file. Our expectation is 

that our comments will be given due weight and 

that our recommendations will be addressed 

in a substantive way within the order or 

release in which a proposed amendment is 

approved or disapproved. However, we also 

have the authority to submit more formal 

recommendations directly to the Commission. 

Exchange Act Section 4(g)(7) requires the 

Commission to establish procedures requiring 

a formal response to all such recommendations 

not later than three months after the date of such 

submission.202 Of course, while the Commission 

must respond to the Investor Advocate’s 

recommendations, it is under no obligation to 

agree with or act upon the recommendations.

Exchange Act Section 4(g)(6) requires us to 

provide, within our Reports on Activities, 

an inventory of the most serious problems 

encountered by investors during the report 

period. The inventory must identify: any action 

taken by the Commission or SRO and the result 

of such action; the length of time that each item 

has remained on the inventory; and for items on 

which no action has been taken, the reasons for 

inaction, and an identification of any official 

who is responsible for such action.

To satisfy Section 4(g)(6), we provide the 

following inventory of comment letters and 

formal recommendations in which we call for 

action by the Commission or an SRO.203 We are 

very selective in choosing the issues to address in 

comments or recommendations and, accordingly, 

we believe these issues are among the most 

serious potential problems for investors. These 

matters are discussed in greater detail in the 

preceding sections of this Report. 
26 | OFFICE OF THE INVESTOR ADVOCATE

Nature and Date of 

Submission

Recommendation of 

Investor Advocate

Action Taken by 

Commission or SRO

Reason for Inaction, 

If Applicable, and 

Responsible Official

Formal Recommendation, 

dated October 16, 2015, to 

Commission204

Opposed application 

of NYSE to amend 

its Listed Company 

Manual to exempt 

early stage companies 

from the existing NYSE 

requirement to obtain 

shareholder approval 

before selling shares for 

cash to related parties, 

affiliates of related parties, 

or entities in which 

a related party has a 

substantial interest.

On December 31, 

2015, the Commission 

approved the proposed 

rule change over our 

objection and provided 

a substantive response 

to our recommendation 

within the approval order.

Action complete

Comment Letter, dated 

October 29, 2015, to 

MSRB205

Supported proposal to 

lengthen the term of 

MSRB board member 

service to 4 years 

(following earlier 

objection to related 

proposal).

On January 26, 2016, 

the MSRB submitted the 

proposed amendment to 

the SEC, which approved 

it on March 17, 2016. 

Action complete

Comment Letter, dated 

December 11, 2015, to 

MSRB and FINRA206

Encouraged adoption 

of consistent markup 

disclosure rules that 

would utilize a full trading 

day timeframe and be 

calculated using the 

“prevailing market price.”

On August 15, 2016, 

and September 7, 2016, 

respectively, FINRA and 

the MSRB submitted 

proposed amendments, 

which largely followed 

our recommendations, 

to the SEC. The proposals 

were approved by the 

SEC after the end of the 

Reporting Period.

Action complete

Formal Recommendation, 

dated December 15, 2015, 

to Commission207

Supported application of 

BATS Exchange, Inc. to 

give itself the authority 

to initiate an expedited 

suspension proceeding 

in order to stop certain 

cases of disruptive and 

manipulative trading 

behavior.

On February 18, 2016, the 

Commission approved the 

proposed rule change.

Action complete
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 27

Nature and Date of 

Submission

Recommendation of 

Investor Advocate

Action Taken by 

Commission or SRO

Reason for Inaction, 

If Applicable, and 

Responsible Official

Comment Letter, dated 

March 31, 2016, to MSRB208

Supported proposed 

guidance for the 

determination of 

“prevailing market price,” 

with suggestions to 

address transactions with 

affiliated parties. 

On September 7, 2016, 

the MSRB submitted 

the proposed guidance, 

which largely followed 

our recommendations, 

to the SEC. The proposal 

was approved by the 

SEC after the end of the 

Reporting Period.

Action complete

Comment Letter, dated 

August 15, 2016, to 

PCAOB209

Supported proposal for 

the auditor’s report to 

include discussion of 

critical audit matters, 

auditor tenure, and 

additional improvements.

Pending at end of 

Reporting Period.

Comment Letter, dated 

September 9, 2016, to 

Commission210

Supported proposal to 

require greater disclosure 

by ATSs that transact 

in NMS stocks, and 

encouraged Commission 

to make current Form 

ATS public for ATSs that 

transact in fixed income 

securities, including 

government securities.

Pending at end of 

Reporting Period.

REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 29

OMBUDSMAN’S REPORT

ESTABLISHING A FOUNDATION 

FOR MEANINGFUL SERVICE

Under Section 919D of the Dodd-Frank 

Act, as codified in 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.211

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).212 The 

Ombudsman’s Report must be included in the 

semi-annual reports submitted by the Investor 

Advocate to Congress. To maintain reporting 

continuity going forward, the Ombudsman’s 

Report included in the Investor Advocate’s 

June 30 Report on Objectives will provide a look 

back on the Ombudsman’s activities during the 

first half of the fiscal year and discuss the objectives 

of the Ombudsman for the following 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 report 

describes the Ombudsman’s 

activities from October 1, 

2015 through September 30, 

2016 (Reporting Period) and 

provides a brief discussion of 

the Ombudsman’s primary 

objectives and outlook for 

Fiscal Year (FY) 2017. 

During the Reporting Period, the Ombudsman213

continued to develop infrastructure and procedures 

necessary to support the ombudsman function by:

• Refining administrative practices and 

procedures for responding to initial matters 

and subsequent investor contacts and 

correspondence;

• Standardizing primary issue tracking 

categories, based on a comprehensive review 

of matters received during FY 2015 and 

FY 2016 to establish reporting continuity;

• Working directly with the SEC’s Office of 

Information Technology and a technology 

contractor to complete the first phase of 

development for the electronic platform for 

matter management, data collection, reporting, 
30 | OFFICE OF THE INVESTOR ADVOCATE

and recordkeeping and to develop the 

corresponding web form for use by the public;

• Amending policies and procedures to 

reflect the transition from a primarily manual 

matter management system to an electronic 

matter management system; and

• Identifying specialized training 

opportunities for staff members to enhance 

their ombudsman and dispute resolution 

knowledge and expertise.

OMBUDSMAN SERVICE 

BY THE NUMBERS

The Ombudsman 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 identify resources and options available 

to resolve their questions or complaints, or as 

a subsequent point of contact when they are 

dissatisfied with the rate of progress or resolution 

of their matters. To respond to inquiries effectively, 

efficiently, and with consistently high quality

service, the Ombudsman uses workflow data 

to monitor the volume of inquiries and the staff 

resources devoted to addressing the particular 

concerns raised. To do so, we track:

• initial inquiries received by or referred to 

the Ombudsman;

• all related correspondence submitted 

to, prepared by, or exchanged with 

Ombudsman staff; 

• actions and resources required to identify 

and respond to inquiries; and

• inquiry status from inception to closure 

or resolution.

Workflow volume is measured in terms of matters 

and contacts. Each matter represents a discrete 

inquiry raised to the Ombudsman and the facts 

and circumstances pertinent to it. Each contact 

indicates a separate communication to or from 

the Ombudsman staff relating to a particular 

matter. Individual matters often generate numerous 

contacts that require separate and additional 

staff attention, research, and responses. These 

matters usually involve related concerns raised by 

investors, ongoing explanations and resolution 

attempts provided by the Ombudsman, or 

recurring instances of challenging or persistent 

communications. 

The Ombudsman tracks matters and contacts 

to maintain a comprehensive view of the time 

and resources spent on each aspect of matter 

resolution. More importantly, the Ombudsman 

uses this information to identify those matters and 

circumstances that significantly alter workflow 

volumes, call for reallocation of resources, or 

require other techniques to manage effectively. 
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 31

Quantifying What We Do

During FY 2016, retail investors, industry 

professionals, concerned citizens, and other 

interested persons sought the Ombudsman’s 

assistance on 222 matters covering 12 primary 

issue categories. Of these 222 matters, 207 were 

new matters initiated during FY 2016 and 15 were 

carry-over matters initiated prior to October 1, 

2016. When a matter is initiated, the Ombudsman 

conducts an initial assessment to examine the 

unique facts, circumstances, and concerns raised, 

and to determine the research, staff engagement, 

and resolution methods that may be required. As 

a matter of practice, the Ombudsman generally 

conducts this initial assessment within five business 

days of receipt of a matter to ensure prompt 

disposition, handling, and referral to other offices 

or divisions as appropriate. During the Reporting 

Period, 99 percent of all new matters were assessed 

within two business days of receipt and 84 percent 

of all new matters were assessed on the date of 

receipt. The chart on the left shows the distribution 

of matters handled during FY 2016 by primary 

category.

Upon a detailed analysis of the facts and 

circumstances behind the 222 matters addressed 

during FY 2016, the Ombudsman identified 

certain noteworthy themes:

• Ten individuals asked the Ombudsman to 

compel FINRA to reverse an unfavorable 

arbitration decision or to deny arbitration;

• Nine investors raised concerns about 

recovering losses in the context of Fair Funds, 

claim funds, or other circumstances involving 

court-appointed receivers; two of the nine 

specifically complained about the inefficiency 

of existing claim funds and their inability to 

make injured investors whole;

• Ten individuals complained about inadequacy 

of investor protections in bankruptcy 

proceedings and/or the role of the SEC in 

corporate bankruptcy restructuring plans; and

• Eighteen investors complained about 

interactions with SEC staff relating to the 

staff’s ability or obligation to advocate for their 

individual concerns, or the staff’s obligation to 

provide access to non-public information.

During FY 2016, the 222 matters discussed above 

resulted in 1,224 contacts. Of these contacts, 

90 percent resulted from 207 new matters. The 

remaining 118 contacts resulted from 15 ongoing 

matters carried over from the prior fiscal year. 
32 | OFFICE OF THE INVESTOR ADVOCATE

The chart below illustrates the distribution of the 

1,224 contacts across the 12 primary categories: 

The Ombudsman’s web presence also expanded

during the Reporting Period, as the Ombudsman’s 

external web page, accessible through the 

Commission’s public website at www.sec.gov/

ombudsman, became publicly available days 

before the beginning of FY 2016. The web 

page offers straightforward explanations about 

the Ombudsman’s role and the assistance the 

Ombudsman provides, and describes how 

individuals may contact the Ombudsman and raise 

concerns for the Investor Advocate’s consideration. 

The web page was viewed 961 times during this 

Reporting Period, with an average time spent on 

each view of 2 minutes and 19 seconds.

The Ombudsman continues to work with SEC 

staff to track these analytics on a continuing 

basis and will use the related information to 

inform and enhance the public’s interest in and 

understanding of information presented on 

the Ombudsman’s webpage. Likewise, as the

Ombudsman’s use of social media increases, we 

will consult these analytics for new and creative 

ways to generate productive engagement with 

investors and to increase the public’s understanding 

of the Ombudsman’s role. In anticipation of 

the Ombudsman Matter Management System 

(OMMS)214 web form becoming available to the 

public, the Ombudsman also is soliciting feedback 

from and working with other ombudsmen and key 

SEC staff to explore the viability of various social 

media platforms as additional avenues for investor 

outreach efforts. 

How We Use the Numbers

The Ombudsman uses matter and contact 

quantitative data for both administrative and 

substantive purposes. Administratively, matter and 

contact data helps the Ombudsman evaluate the 

resources required to reach closure or resolution 

and make strategic decisions to ensure that persons 

seeking the Ombudsman’s assistance receive an 

appropriate level of personalized service and staff 

resources. For example, when an individual asks 

the Ombudsman to resolve a concern by taking 

measures that fall outside of the Ombudsman’s 

statutory authority, it may be appropriate to 

dedicate additional time and resources to exploring 

feasible alternatives. However, if the individual is 

unwilling to consider other options and signals this 

through voluminous or repetitive communications 

to the staff, the workflow data may indicate that 

continued resolution efforts are not an appropriate 

use of staff or agency resources. In such instances, 

the Ombudsman may inform the staff or individual 

that, barring any new or pertinent information that 

impacts the staff’s analysis, subsequent incoming 

correspondence will be reviewed but the matter 

itself may be closed.

The quantitative data also informs resource 

allocation considerations related to our program 

development efforts. For example, we anticipate 

that changes in our workflow data before and after 
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 33

the OMMS Form release may provide insight on 

how the introduction of a public-facing electronic 

platform for accessing the Ombudsman (i) affects 

public awareness of the Ombudsman’s services; 

(ii) encourages individuals who have not previously 

contacted the Ombudsman to do so; (iii) enhances 

public input on the issues the Ombudsman 

identifies and regulatory recommendations 

the Ombudsman may present for the Investor 

Advocate’s consideration; and (iv) affects the 

staff’s ability to resolve certain types of inquiries 

more efficiently than telephone calls or other 

forms of correspondence may allow. In this way, 

quantitative data may identify procedural changes 

to expedite the resolution of concerns without 

decreasing the individualized, high-quality response 

each investor receives. In addition to tracking 

quantitative data, the Ombudsman also evaluates 

matters and contacts based on the primary issues 

involved. By tracking the distribution of investor 

matters and contacts across categories that 

appropriately represent the range of concerns 

the Ombudsman receives, the data helps the 

Ombudsman identify potential areas of impact 

or concern. 

During this Reporting Period, the Ombudsman 

refined these issue categories further to incorporate 

the most useful category structure into the design 

of OMMS data management configuration and 

to build in flexible data tracking and reporting 

functionality. The staff also revised the existing 

manual record-keeping systems, adjusted the 

corresponding category data for FY 2016, and 

maintained 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. Through these efforts, the 

staff maintained the utility of existing workflow 

data and used that data to enhance the services 

the Ombudsman provides.

OMBUDSMAN SERVICE 

BEHIND THE NUMBERS

As indicated in prior reports, the numbers are 

helpful for understanding some aspects of the 

Ombudsman’s day-to-day operations. However, 

even when Ombudsman staff deliverables are easy 

to quantify—such as the number of matters and 

contacts fielded during the fiscal year—narrative 

descriptions provide essential information to 

interpret what those numbers represent from a 

time, resource, and customer service perspective. 

The 1,224 contacts fielded during FY 2016 

represent a 68.4 percent increase over the 

727 contacts fielded during FY 2015.215 This 

comparison takes on more meaning in the context 

of key details. By adding a few descriptive facts, 

the 68.4 percent percent increase reveals the 

complex nature of the service and assistance 

provided to investors.

Throughout FY 2016, the Ombudsman 

function was supported by three persons—

the Ombudsman and two attorneys. Every 

matter and contact involved at least one 

Ombudsman staff member’s active participation 

as a listener, reviewer, securities law resource, and 

solution provider. Every item of correspondence 

was reviewed for any potential substantive value 

it might add to the process of reaching an effective 

resolution to the unique concerns that brought the 

individual to the Ombudsman for help. Numerous 

matters and ensuing contacts required the staff to 

review additional information, perform research, 

assess related matters or concerns handled by other 

SEC offices and divisions, and consult other SEC 

staff on a regular basis. 

The relationship between our numbers, our 

accomplishments, and our investor service 

approach is not always readily apparent. For 

that reason, we routinely provide vignettes to 
34 | OFFICE OF THE INVESTOR ADVOCATE

demonstrate the staff time, effort, and commitment 

that transform the numbers into a full picture of 

the earnest efforts of the Ombudsman to provide 

meaningful, personalized service that creates unique 

value for retail investors. The examples below 

highlight representative themes the Ombudsman 

identified through assistance provided to the 

investors during FY 2016. 

Share Value Losses and Concerns

During the Reporting Period, the Ombudsman 

received inquiries from 10 retail investors as 

shareholders of publicly traded companies, asking 

the SEC to intervene in U.S. Bankruptcy Court 

proceedings, with the expectation that the SEC’s 

investor protection role obligated the agency to do 

so. These investors were somewhat frustrated to 

discover the SEC has neither the obligation nor the 

authority to represent retail investors in bankruptcy 

cases. Some investors perceived the Ombudsman’s 

response as proof that the protection of retail 

investors is a superficial policy meant to conceal 

a conspiratorial connection between the SEC 

and Wall Street corporate insiders. Investors who 

took this perspective posed unique challenges 

for Ombudsman staff engagement and required 

varying degrees of nuanced diplomacy to assist 

effectively and resolve the complaints. 

The Ombudsman also observed that investors 

who suffered losses from conduct reported in 

SEC enforcement actions complained somewhat 

differently and tended to be less receptive to 

Ombudsman assistance overall. Several investors 

contacted the Ombudsman because SEC staff in a 

particular office or division declined the investor’s 

requests for non-public information relating to 

SEC investigations, including questions about the 

status of investigations, the SEC’s legal strategy, 

the financial solvency of an individual or entity 

associated with the conduct, or other petitions. 

Some investors spoke in terms of their right to nonpublic information, while others felt that it was 

the SEC’s duty to mitigate the harm by providing 

the requested information. One particularly

zealous investor complained that the SEC staff did 

not follow this individual’s specific investigative 

instructions or carry out their duties in the way the 

investor expected advocates to behave. 

Successful SEC enforcement actions—particularly 

those involving large financial judgments—reinforce these investor perceptions and sometimes 

encourage investors to present their complaints 

to the Ombudsman in more adversarial or 

antagonistic ways. For example, two investors 

contacted the Ombudsman to complain about the 

administration of different investor claim funds. 

In one instance, an investor left a phone message 

characterizing the relevant issue as “an SEC 

screw-up of unbelievable proportions” for which 

the Ombudsman owed the investor a satisfactory 

response. The Ombudsman effectively allayed 

the investor’s concerns by establishing respectful 

rapport, addressing each point of the investor’s 

assumptions through extensive dialogue, and 

realigning the investor’s expectations properly. 

In another situation, an individual claimed that 

the administration of a particular Fair Fund 

proved the SEC did not actually intend to protect 

investors because the distributions did not cover 

the full amount of the investors’ losses. Again, the 

investor’s complaint with the SEC flowed from 

particular assumptions about the meaning of 

investor protection in the context of the federal 

securities laws and the SEC’s legal authority. 

In analyzing the common aspects of these scenarios 

and investor reactions, it became apparent that 

investor expectations were affected by beliefs that 

a causal connection existed between a regulatory 

event or enforcement action and the subsequent 

depreciation in the value of their investments. 

Investors who articulated this connection also 

tended to see themselves in a personal SEC-investor 

relationship defined and governed by the investor’s 
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 35

beliefs about fairness. Through a diplomatic 

and thoughtful approach to each investor, the 

Ombudsman consistently identified barriers to 

effective communication, realigned each investor’s 

expectations when needed, and explained key 

aspects of the securities laws and the role of the 

SEC in the context of each investor’s assumptions 

and complaints.

Investor Protection and 

Advocacy Expectations

During the Reporting Period, the Ombudsman 

received multiple inquiries from investors 

presenting a range of beliefs about what protecting 

investors means in the context of the SEC’s stated 

mission, along with a similar range of expectations 

about how protecting investors should apply to 

their particular concerns or complaints. Perhaps 

nowhere were these concepts more evident than in 

staff interactions with a small number of investors 

and individuals who engaged the staff intensely and 

persistently. These individuals presented unique 

challenges for the Ombudsman because of their 

demands for a particular resolution, outcome, 

or SEC action, their presentation of ongoing 

hypothetical scenarios, their resistance to engage 

in beneficial communications, and often, 

the sheer volume of their communications and 

the disproportionate staff effort required to address 

those communications.

Several tenacious investors contacted the 

Ombudsman throughout the Reporting Period 

with complaints that SEC staff members routinely 

ignored their communications, refused to initiate 

investigations or provide investigation details 

and updates, and failed to obtain the results the 

investors asked for in their individual complaints. 

Typically, these investors presented complaints that 

spanned periods of years and involved contract 

law and consumer rights issues, allegations of 

conspiracies and fraudulent schemes involving 

specific SEC staff, and other disparate accusations 

and complaints outside of the scope of the SEC’s 

mandate. These investors often insisted that the 

only fair outcome of their particular complaint

was the outcome they identified. These outcomes 

usually included demands that the SEC make 

exceptions to the securities laws, ignore and act 

outside of the bounds of its statutory authority and 

limitations, and take unprecedented action against 

persons and entities. 

After conducting research to understand the nature 

of the underlying conflicts and issues involved, and 

after the detailed review of the years of voluminous 

correspondence, records, and related complaints 

these investors filed with the SEC and other 

entities, the Ombudsman devoted significant time 

and resources explaining what the SEC could and 

could not do to assist the investors, and offering 

other resources and options. What is often not 

accepted or acknowledged by these investors is the 

Ombudsman staff’s earnest attempts to address 

their wide-ranging concerns. Although investors 

are often disappointed to learn that the SEC cannot 

provide the assistance they expect, most are able 

to readjust their expectations accordingly. Some 

investors, however, are not. Rather, these investors 

endeavor to force a different result by engaging in 

ongoing communications, escalating allegations 

and accusations, and refuting the information, 

resolution options, and resources presented by 

the Ombudsman staff and others at SEC. These 

investors respond with the full force of their 

convictions—they assume an intractable position 

with seemingly no regard to the scope or limits of 

the SEC’s authority.

Many investors raise the SEC’s mission statement—

to protect investors, maintain fair, orderly and 

efficient markets, and facilitate capital formation—

to support their positions and complaints. In 

particular, many insist that the protection of 

investors noted in the SEC’s mission statement, 

coupled with the name of our Office—the Office 

of the Investor Advocate—proves that SEC staff 

should advocate for laws and statutes to be 
36 | OFFICE OF THE INVESTOR ADVOCATE

expanded, creatively interpreted, or disregarded 

altogether to reach the particular outcome 

the investor demands. For these investors, the 

Ombudsman explains the mission statement and 

the name of the Office, and distinguishes the 

general understanding of an advocate from the 

particular meaning in the context of the work 

of the Office—namely, to advocate and provide 

a voice for retail investors in the policymaking 

processes of the Commission, SROs, and Congress. 

Ongoing discourse with these investors can be 

challenging and costly from a resource point 

of view, and often results in a standstill, where 

investors’ expectations and demands cannot be 

met and no satisfactory resolution can be reached. 

The benefit of these interactions is that they 

provide opportunities for the Ombudsman to 

consider and examine investors’ understandings 

of certain terms and concepts closely associated 

with the mission and work of the SEC and how 

those understandings should inform not only the 

responses we provide to investors, but also the 

practical aspects of Ombudsman operations. 

Input from Industry Professionals 

During FY 2015, a retired financial industry 

professional identified certain corporate bond 

transaction practices that create disparities in 

the flow of information available to retail and 

institutional investors. The professional submitted 

a detailed report offering a thorough analysis of the 

circumstances and practices involved. Upon review 

of the report, the Ombudsman staff consulted 

with SEC subject matter experts and shared the 

report with key staff. Although the investor did not 

submit the report in response to an SEC rulemaking 

or policy initiative open for public comment, the 

staff appreciated the well-presented and thorough 

analysis, noting the benefit both the public and the 

staff could gain from feedback offered in response 

to requests for public comment on other similar 

issues in the future. 

Another investor offered observations and 

recommendations relating to disclosure 

requirements in Regulation S-K and the manner 

in which Regulation S-K disclosure information is 

available to investors. The Ombudsman engaged 

SEC staff in key offices and divisions to review the 

investor’s detailed examples and recommendations. 

The Ombudsman further encouraged the investor 

to submit formal comments to the Commission 

in response to a specific concept release and the 

larger disclosure issues his observations raised. 

We informed the investor that input from the 

public often influences policy determinations and 

rulemaking recommendations considered by our 

Office and the Commission, and his perspectives 

and comments were valued and welcomed.

FINRA DISPUTE 

RESOLUTION PROCESS

The Ombudsman is empowered to act as a liaison 

between the Commission and any retail investor 

in resolving problems that retail investors may 

have with an SRO such as FINRA.216 As noted in 

the Ombudsman’s prior reports,217 retail investors 

continue to raise concerns about the FINRA 

dispute resolution process. During FY 2016, 

the Ombudsman continued the regular practice 

of monitoring policy, news, and other activity 

relating to the FINRA dispute resolution forum. 

The Ombudsman specifically focused on FINRA 

activities impacting retail investors. A few of these 

issues raised by investors are discussed below.

Explained Decisions

The FINRA Dispute Resolution Task Force (Task 

Force) was formed in in July 2014 to provide 

recommendations to FINRA’s National Arbitration 

and Mediation Committee (NAMC) to improve the 

arbitration forum. 218 The Task Force issued its final 

report in December 2015,219 which spanned 51 

recommendations over 11 thematic areas, including 

explained decisions and expungement. The Task 

Force made three recommendations to the NAMC 
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 37

with respect to explained decisions: (i) FINRA 

should require an explained decision unless a 

party to the arbitration notifies FINRA that it 

does not want an explained decision; (ii) the 

existing fact-based format of the explanation 

should be retained, but the decision should include 

a summary explanation of the damages calculation; 

and (iii) before expanding explained decisions, 

FINRA should develop and administer a training 

program on how to write them.220

During the Reporting Period, a retail investor raised 

concerns to the Ombudsman about the FINRA 

arbitration process, stating that he was unaware 

that he would not receive an explained decision 

in his simplified arbitration. The investor raised 

concerns about the fairness of FINRA arbitration, 

particularly because awards are routinely issued 

without providing explanations for the decisions. 

The investor also questioned the partiality of the 

award because, in his view, his opponent was 

a broker-dealer whose fees help fund FINRA’s 

operations. This retail investor’s perception of 

fairness is consistent with the Task Force’s views on 

expanding the use of explained decisions. The Task 

Force observed that expanding the use of explained 

decisions may improve the transparency of the 

FINRA arbitration system and increase investor 

confidence in arbitration outcomes.221

This retail investor’s complaint also provides insight 

into the value of explained decisions in simplified 

arbitrations. Under FINRA rules, simplified 

arbitrations are disputes involving $50,000 or less, 

with one arbitrator assigned rather than a panel of 

three arbitrators, and where the assigned arbitrator 

is selected from the chairperson roster unless the 

parties agree otherwise.222 No arbitration hearing 

is held unless the investor requests one, and if there 

is no hearing, the arbitrator will render an award 

based on the pleadings and discovery provided by 

the parties.223 Notably, a simplified arbitration is 

not eligible for an explained decision unless the 

investor requests a hearing.224 Even if the investor 

makes this request, the arbitrator need only provide 

an explained decision upon the joint request by 

both parties before the first arbitration hearing.225

FINRA notes that explained decisions are not 

appropriate in simplified arbitrations due to 

the “abbreviated nature of the proceedings.”226

This view is echoed by some legal scholars who 

otherwise support explained decisions, on the 

basis that the parties to a simplified arbitration 

seek an expedited, inexpensive resolution.227

Scholars also opine that the parties would benefit 

from a brief statement of factual findings and an 

explanation of why the findings justify the result.228

Expungement Requests and Hearings

The Task Force made six recommendations to 

the NAMC with respect to expungement: 

(i) FINRA should create a pool of speciallytrained arbitrators from the chairperson roster 

to conduct expungement hearings in settled cases 

and in all cases where claimants did not name 

the broker as a respondent; (ii) the arbitration 

panel that conducts the arbitration should also 

conduct the expungement hearing in cases decided 

on the merits, provided the chairperson attends 

special expungement training; (iii) FINRA should 

review procedures for notifying state regulators of 

expungement requests, but the Task Force took 

no position on NASAA’s recommendation for a 

regulatory approach to expungement; (iv) FINRA 

should review its expungement training with a 

consultant; (v) FINRA should review the second 

Rule 2080 ground for expungement (the broker 

was not involved in the “alleged investmentrelated sales practice violation, forgery, theft, 

misappropriation, or conversion of funds”); 

and (vi) FINRA should require greater expungement training for arbitrators, with additional 

training required to qualify for the special 

arbitration panel.229
38 | OFFICE OF THE INVESTOR ADVOCATE

During the Reporting Period, there was an 

important expungement-related development 

that may impact retail investors in the future. In 

Royal Alliance v. Liebhaber, a financial advisor 

encouraged a retail investor to select “illiquid, highrisk investments” that were “inappropriate and 

unsuitable” for her individual retirement account, 

and which allegedly resulted in a $325,000 loss.230

The investor filed an arbitration claim with 

FINRA against the advisor and firm, and settled 

with the firm for $30,000.231 Once the case was 

settled, the firm requested a hearing to expunge 

the complaint from the financial advisor’s record. 

Despite objections by the investor’s counsel that the 

investor was not given a full and fair opportunity 

to participate in the expungement hearing, the 

arbitrators took the position that the proper process 

had been followed and that additional information 

from the investor was unnecessary. The arbitration 

panel ultimately recommended expungement. The 

investor’s counsel then wrote a letter to FINRA 

Dispute Resolution requesting that arbitrators be 

informed that investors are allowed to tell their 

side of the facts in expungement hearings, 

and that FINRA oppose the particular request 

for expungement.232

Two days later, FINRA emailed arbitrators 

and posted updated guidance on its website 

emphasizing the importance of allowing investors 

and their counsel to introduce evidence at 

expungement hearings, cross-examine the broker 

and witnesses for the party seeking expungement, 

and to present opening and closing arguments if 

the arbitrators allow the parties to do so.233 FINRA 

also provided updated guidance to arbitrators 

related to the rights of retail investors in FINRA 

expungement hearings.234

The firm subsequently filed a petition with a 

California state court to obtain an order confirming 

an arbitration award of expungement and named 

the investor and FINRA as respondents to the 

petition.235 Both the investor and FINRA requested 

that the expungement order be vacated.236 The 

investor argued that she had an interest in the 

expungement proceedings because by awarding 

expungement, the arbitrators were making the 

determination that the investor’s viewpoints were 

false or erroneous.237 The investor also argued that 

she represented a greater good for regulators and 

the investing public by ensuring that the adviser’s 

Central Registration Depository (CRD) and 

BrokerCheck238 records were accurate.239 FINRA 

also stated that it had an interest in protecting the 

integrity of the CRD system.240

On August 30, 2016, a California appellate court 

ruled that retail investors have a right, as a matter 

of fairness, to challenge a broker’s efforts to seek 

expungement. The appellate court ultimately 

determined that the expungement hearing was not 

fair because the arbitrators permitted the firm the 

opportunity to bolster its written record with oral 

testimony, but did not permit the investor to do 

the same.241

Although the ruling is based on California law, 

it offered some important lessons that may be 

useful to retail investors with disputes in 

FINRA arbitration: 

• If an investor is aware that an opposing party 

is seeking expungement and the investor 

believes that expungement is not warranted, 

the investor should consider participating in 

the expungement hearing to challenge the 

expungement request. In addition, the investor 

may request from FINRA, or the from the 

appropriate state securities regulator, to be 

informed when the broker files a petition for 

expungement.242

• If an investor participates in a FINRA 

expungement hearing, the investor should 

consider participating as vigorously as possible. 

In most circumstances, the investor has a right 

to submit written evidence, provide testimony, 
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 39

and cross-examine the individual seeking the 

expungement. If allowed by the arbitrators, 

the investor may provide an opening statement 

or a closing statement, or both.243 FINRA 

also permits investors and their attorneys to 

participate in expungement hearings in person 

or by phone. 

• If a broker is awarded expungement by 

the arbitration panel, the broker still must 

have a court approve the award granting 

expungement. This presents an additional 

opportunity for the investor to participate in 

the expungement process and to present factual 

information to a judge. 

FINRA Dispute Resolution Party Portal

During Fiscal Year 2015, the Ombudsman received 

a complaint from a retail investor concerned 

that FINRA did not follow its own arbitration 

hearing policies and procedures or communicate to 

arbitration participants that it received pleadings. 

The investor also complained that the opposing 

party did not provide timely discovery. Another 

investor informed the Ombudsman that the 

opposing party did not timely produce documents, 

and that it produced documents of questionable 

authenticity during the arbitration, which the 

arbitrators accepted.

During the Reporting Period, FINRA proposed a 

rule change that addressed some of these concerns 

by requiring all arbitration parties other than pro se

customers to file and serve statements of claim and 

pleadings through the FINRA Office of Dispute 

Resolution’s Party Portal (Party Portal), requiring 

all customers to file discovery correspondence 

through the Party Portal, and permitting mediation 

parties to use the Party Portal.244 Comments to the 

proposed rule were largely supportive, although 

organizations representing retail investors in 

dispute resolution proceedings sought modifications 

to the proposed rule.245

The Party Portal allows arbitration parties to 

electronically file complaints, pleadings, discovery 

requests, correspondence, and other documents to

opposing parties. Arbitrators and mediators have 

the option to use the Party Portal on a voluntary 

basis, but they are not required to use it.246 As a 

result, all documents uploaded to the Party Portal 

must be provided to arbitrators and mediators 

separately. The Party Portal is an important step 

to ensure that arbitration participants follow 

FINRA discovery requirements, although it may 

provide greater piece of mind to retail investors 

if arbitrators are deemed to have received the 

documents once the documents are uploaded 

to the Party Portal. 

For retail investors, below are important points to 

consider regarding the use of the Party Portal:

• Although pro se parties are not required to 

use the Party Portal to file initial statements of 

claim or to file and serve pleadings, a pro se

party must use the Party Portal to file discovery 

correspondence.247

• Investors, other than pro se investors who 

opt-out of using the Party Portal, may only 

pay arbitration fees online by check or credit 

card. For investors paying by check, the 

Party Portal User Guide contains detailed 

instructions on how to make payments via the 

Party Portal using bank routing and checking 

account numbers.248

• Arbitrators and mediators are not obligated 

to use the Party Portal. Hence, all documents 

uploaded to the Party Portal should be sent to 

the arbitrators separately.

• The Party Portal is used for filing complaints, 

pleadings, motions, discovery requests, 

and correspondence, but it is not used for 

responsive document production. When 
40 | OFFICE OF THE INVESTOR ADVOCATE

producing documents to the opposing party, 

provide those documents by a means other 

than the Party Portal.

FORM U5 DISCLOSURE 

Under FINRA rules, when a broker leaves a 

brokerage firm, the firm must file a Uniform 

Termination Notice for Securities Industry 

Registration (Form U5) with FINRA within 30 

days, and provide the broker a copy of the Form 

U5.249 The Form U5 provides the date the broker 

terminated employment with the firm and the 

reason for the broker’s departure.250 If the firm 

becomes aware of facts or circumstances that 

render the information in the Form U5 inaccurate 

or incomplete, the firm must file an amendment 

to the Form U5 with FINRA within 30 days, and 

the firm must provide the broker with a copy of 

the amendment.251

The Ombudsman received several complaints 

from brokers asserting that their former employers 

entered false information on the brokers’ Form U5s 

in retaliation against the brokers for resigning. One 

broker argued that his former employer entered 

false information on his Form U5 and that FINRA 

refused to investigate, even though false statements 

on a Form U5 violate FINRA’s rules.252

The Ombudsman has a strong interest in proposed 

rule changes involving information contained 

in CRD.253 Form U5 disclosure, in particular, is 

valuable to regulators, firms, and investors. State 

regulators review this information when making 

licensing decisions, FINRA reviews Form U5s in 

order to identify and initiate investigations of firms 

and brokers that may pose a risk, firms utilize 

this information when making hiring decisions,254

and Form U5 information in BrokerCheck alerts 

investors about potential red flags in a broker’s 

employment history.255 The timely availability 

and accuracy of information in BrokerCheck 

may significantly impact investor decisions and 

investor protection. 

Form U5 Reporting Time Frames

During the Reporting Period, NYSE Arca and 

NYSE MKT (Exchanges) proposed rules extending 

their Form U5 reporting periods from 10 days after 

the employment termination date to promptly but 

not later than 30 days after the termination date.256

The rationale for the change was to harmonize 

their existing 10-day reporting time frame with 

the 30-day reporting time frame of the other 

exchanges and SROs.257 The Exchanges argued 

that the requirement that the firms file “promptly” 

might lead firms to file Form U5s sooner than the 

current 10-day requirement.258 The Exchanges also 

suggested that their 10-day requirement imposed 

a burden on competition for them compared to 

other SROs that require longer Form U5 

reporting time frames.259

On October 3, 2016, the Investor Advocate 

and Ombudsman provided comments to the 

Commission in objection to the Exchanges’ 

proposed rules,260 noting that the move to a 30-day 

time frame was not in the public interest and may 

contribute to, rather than prevent, fraudulent and 

manipulative acts and practices in the markets. For 

example, extending the 10-day reporting period to 

a 30-day reporting period presents a gap of time 

in which a bad broker fired for misconduct could 

race to a new firm before any negative disclosures 

came to light in the Form U5 filing by the prior 

firm.261 While noting our support for a harmonized 

approach among all the various SROs, the Investor 

Advocate and Ombudsman suggested that the 

appropriate route to harmonization would be to 

shorten the filing time frames of the other SROs 

rather than lengthening the time frames for 

these Exchanges. 
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 41

Although the 30-day filing standard may have 

been consistent with the Exchange Act in 1996 

when FINRA’s predecessor obtained Commission 

approval for the electronic filing of Form U5s, the 

30-day time frame may no longer be necessary 

given the significant advances in technology since 

the 1990s. On October 5, 2016, the Commission 

published an order to institute proceedings 

pursuant to Exchange Act Section 19(b)(2)(B) to 

determine whether to approve or disapprove the 

Exchanges’ proposed rules changes.262

For retail investors, the takeaway from this 

discussion is that BrokerCheck and the Investment 

Adviser Public Disclosure (IAPD) website are 

critical tools for assessing the credibility and 

trustworthiness of brokers, investment advisers, 

and financial services firms.263 When determining 

whether to hand over money to a broker, adviser, 

or firm, retail investors are encouraged to check 

BrokerCheck and IAPD first.

Broker and Adviser Misconduct

A companion issue to Form U5 reporting is the 

prevalence of broker and adviser misconduct in the 

financial services industry, as misconduct is believed 

to have a strong correlation with job separation at 

the firm level.264 Misconduct in the industry affects 

all market stakeholders including firms who seek to 

develop their reputations to attract customers, retail 

investors who put their trust in financial services 

firms and the individuals employed by those firms, 

and regulators who license industry professionals 

and ensure that those who violate securities laws

and regulations are held accountable. In the last 

two years, several studies have been published 

that provide insight to the prevalence and patterns 

of misconduct within the industry, which can be 

useful information to retail investors when deciding 

whether to hand over their investments to advisers, 

brokers, and firms.265

Generally, retail investors should be wary of 

brokers and advisers with misconduct on their 

records, or who work for firms with significant 

numbers of employees with misconduct on their 

records. Suggested steps that investors can take 

to research a broker, adviser, or firm include 

the following:

• Review BrokerCheck and IAPD for disclosure 

events, employment history, and other 

potential red flags before deciding whether 

to invest; 

• Go to the FINRA Disciplinary Actions Online 

web page266 to review documents related to 

FINRA’s disciplinary enforcement against 

brokers and firms; and

• Contact their state securities regulator for 

information related to a specific broker, 

adviser, firm, or branch office of a firm.267
42 | OFFICE OF THE INVESTOR ADVOCATE

OMBUDSMAN 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 

Ombudsman follows three core standards of practice:

CONFIDENTIALITY IMPARTIALITY INDEPENDENCE

The Ombudsman has 

established safeguards to 

protect confidentiality, including 

a separate email address, 

dedicated telephone and fax 

lines, and secure file storage. The 

Ombudsman will not disclose 

information provided by a person 

in confidence, including identity, 

unless expressly authorized 

by the person to do so, or if 

required by law or other exigent 

circumstances, such as a threat 

of imminent risk or serious harm. 

At times, the Ombudsman may 

need to disclose information 

on a limited basis to other SEC 

staff to address inquiries and 

related issues. In these instances, 

information is only shared to the 

extent necessary to route and 

review the matter. 

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 Chair 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.

OMBUDSMAN MATTER 

MANAGEMENT SYSTEM

The Ombudsman maintains records of inquiries 

and concerns to: (i) identify and respond to 

problems retail investors have with the Commission or with SROs; (ii) track and analyze inquiry 

volume, response, and resolution times; (iii) categorize and report corresponding trends and 

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

recommendations presented by the Ombudsman to 

the Investor Advocate for review and consideration.

During the Reporting Period, the Ombudsman 

continued to use manual recordkeeping systems to 

collect, document, track, and respond to all forms 

of correspondence received from retail investors 

and other persons. This included the manual review 

of all correspondence to ascertain issue trends and 

determine areas of interest or concern to investors.

In addition, the Ombudsman continued to work

extensively with the SEC’s Office of Information 

Technology (OIT) and a technology contractor to 

complete the functionality and test environment 

phase for the Ombudsman Matter Management 

System (OMMS), a platform for collecting, 

recording, and tracking matters while ensuring 

necessary data management, confidentiality, and 

reporting requirements are met. In addition, the 

Ombudsman and approved staff will have the 

ability to review investor inquiries and complaints, 
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 43

access handling and resolution histories, and run 

reports within OMMS. 

We coordinated with key SEC staff to timely and 

successfully complete the Paperwork Reduction 

Act and U.S. Office of Management and Budget 

(OMB) Clearance Procedure process during Fiscal 

Year 2016. We received the OMB Control Number 

during September 2016, and are preparing to 

provide the public with the option of using the webbased OMMS Form to submit their complaints 

and questions. Persons will still have the ability to 

communicate with the Ombudsman by traditional 

methods; however, we anticipate OMMS becoming 

the primary method used by retail investors to 

initially contact the Ombudsman for assistance 

with problems they encounter with the Commission 

or with SROs. The OMMS Form will be accessible 

from the http://www.sec.gov/ombudsman webpage, 

and will guide the user through a series of questions 

tailored to elicit specific information relating 

to problems retail investors encounter with the 

Commission or SROs. The OMMS Form will also 

provide an easy method to electronically upload 

and submit related documents for Ombudsman 

staff review. We are on track to transition to the 

OMMS platform in FY 2017, and to begin phase 

two of OMMS development, where we will 

work with OIT and the consultants to develop 

additional functionality.

OUTREACH AND ENGAGEMENT

The Ombudsman is required to review and make 

recommendations regarding policies and procedures 

to encourage persons to present questions to the 

Investor Advocate regarding compliance with 

the securities laws. To achieve this objective, the 

Ombudsman must be known, approachable, and 

accessible to key stakeholders—SEC staff at all 

levels, retail investors, financial service industry 

participants and regulators—and other interested 

persons. In this context, sharing information about 

the role within and outside of the SEC is central to 

the Ombudsman’s effectiveness. 

During FY 2016, the day-to-day focus remained 

primarily on establishing policies, procedures, and 

systems required to meet the needs of investors and 

others seeking assistance from the Ombudsman 

to resolve problems with the Commission itself 

or with SROs. In addition, we identified unique 

opportunities to engage key stakeholders, share 

information, and develop the relationships essential 

to the Ombudsman’s effectiveness. 

Law School Clinic Outreach Program

Several law schools across the country run securities 

law and investor-focused clinics that provide legal 

representation to retail investors who are unable to 

hire legal counsel to handle their claims.268 Many 

of these clinics also conduct outreach to inform 

their local communities about financial products, 

saving and investing wisely, and avoiding scams—

particularly those aimed at specific communities 

such as immigrants, veterans, and senior investors.

In recent semesters, the Office of the Investor 

Advocate has benefitted from SEC law student 

externs assigned to our office who have participated 

in investor protection, securities law, and 

arbitration clinics at their respective law schools. 

As introduced in the Ombudsman’s Report dated 

June 30, 2016, the Ombudsman, working directly 

with the Investor Advocate and a senior counsel, 

developed a framework for an outreach program 

to inform law schools with investor protection, 

securities law and investor-focused clinics of 

the work of the Office. The outreach program 

is designed to align with our Office’s statutory 

mandate and core functions, and to benefit law 

student clinic participants and the investing public. 

The primary goal of the outreach program is to 

create a dynamic forum for law students and 

clinic classes to provide the Investor Advocate and 

Ombudsman their perspectives, direct feedback, 

and formal comments on SEC rulemakings and 

policy and retail investor concerns.
44 | OFFICE OF THE INVESTOR ADVOCATE

During the fourth quarter of FY 2016, the 

Ombudsman confirmed participation from three 

law schools to participate in the pilot phase of the 

outreach program. We began our visits to the law 

school clinics in October 2016. Our visits have 

been extremely beneficial and the students and 

professors are eager to continue the exchange of 

ideas with our Office. The students are particularly 

eager to review SEC regulations and SRO rules 

to identify areas in which retail investors could 

potentially benefit from changes, and to offer 

feedback and recommendations on policies directly 

impacting retail investors. We look forward to 

sharing the progress of the outreach program in 

future reports. 

We also recognized that the outreach program 

offers a unique opportunity to inform these 

students—who are already demonstrating an 

interest in securities law and public service through 

their clinic participation—about internships, 

externships, and careers at the SEC. We feel that 

our outreach program augments the SEC’s diversity 

and inclusion efforts in several ways as the agency 

develops additional paths to attract a diverse pool 

of potential applicants drawn from all segments 

of society. We plan to use our interactions with 

the clinic classes as an opportunity to support the 

SEC’s initiatives to expand the diversity of our 

applicant pool and sustain a workplace culture that 

welcomes and values innovative thoughts, ideas, 

and approaches.

Additional Outreach and 

Industry Activities

During the Reporting Period, the Ombudsman 

continued to seek out opportunities to increase 

awareness and elevate the visibility of the position 

through participation in securities industry events, 

conferences, and leadership opportunities. During 

FY 2016, these outreach efforts and related 

activities included the following: 

• Administrative Conference of the United 

States—The Ombudsman in Federal 

Agencies report: Ombudsman working group 

participation, report review, and feedback;

• American Bar Association Section of Dispute 

Resolution—Ombuds Subcommittee; 

• Coalition of Federal Ombudsmen 

Annual Conference; 

• Corporate Counsel Women of Color—

Featured Speaker at 2016 Annual Conference;

• Fordham Lawyer magazine, Fall 2015 

Issue—Featured in “Beltway Access” article 

spotlighting government service careers; 

• International Ombudsman Association 

Annual Conference; 

• Securities Industry and Financial Markets 

Association Compliance and Legal Society 

Annual Conference; 

• Toigo Foundation—Groundbreakers Women 

in Leadership Summit; and

• U.S. Ombudsman Association—New 

Ombudsman Training and Annual Conference.

OUTLOOK FOR FISCAL YEAR 2017

More than 3,000 matters and contacts—

representing personalized information and service 

provided to investors and other persons to address 

their complaints and concerns—have been handled 

by the Ombudsman since the role was established 

in September 2014. The shift from manual 

recordkeeping systems to the OMMS platform 

in FY 2017 will add an important channel of 

communication for retail investors and will allow 

the Ombudsman to resourcefully track and analyze 
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 45

matter and contact data to better inform the work 

of our Office. In addition, OMMS will create better 

efficiencies to allow the Ombudsman and staff to 

continue the high level of personalized, thoughtful 

service to retail investors that has become a 

hallmark of our approach. 

The Ombudsman also plans to restructure staff 

resources and responsibilities to accommodate 

additional investor outreach efforts. These efforts 

include investor-focused speaking engagements, 

expanded use of social and traditional media 

to share information with the investing public 

and interested persons, and more involvement 

in ombudsmen, securities industry, and dispute 

resolution conferences and events. In addition, the

Ombudsman will continue to examine the various 

ways the SEC communicates with retail investors 

and the public to identify areas for improvement 

in both perception and practice. This is an ongoing 

issue that will involve a close examination of what 

the SEC communicates to investors, how those 

communications are structured and delivered, and 

what improvements can be made to best serve the 

needs of investors and the mission and work of the 

agency. I look forward to reporting on our progress 

in all of these areas in our next report.

Tracey L. McNeil

Ombudsman

REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 47

SUMMARY OF IAC 

RECOMMENDATIONS AND 

SEC RESPONSES

Congress 

Commit

the Com

established the Investor Advisory 

tee to advise and consult with 

mission on regulatory priorities, 

initiatives to protect investor interests, initiatives to 

promote investor confidence and the integrity of 

the securities marketplace, and other issues.269 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.270

Exchange Act Section 39 authorizes the Committee 

to submit findings and recommendations for 

review and consideration by the Commission.271

The statute also requires the SEC to promptly 

issue a public statement assessing each finding or 

recommendation of the Committee and disclosing 

the action, if any, the Commission intends to take 

with respect to the finding or recommendation.272

While the Commission must respond to the IAC’s 

recommendations, it is under no obligation to agree 

with or act upon the recommendations.273

In each of its reports to Congress, including 

this one, the Office of the Investor Advocate 

summarizes the IAC recommendations and the 

SEC’s responses to them.274 This report covers 

all recommendations the IAC has made since its 

inception.275 However, 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.276 Therefore, any such 

initiatives are not reflected in this Report.

Enhance Information for 

Bond Market Investors

This recommendation, adopted on June 7, 

2016, calls for SRO and Commission action to 

provide post- and pre-trade price transparency in 

municipal, corporate and agency bonds.277

Specifically, the IAC recommended that the 

Commission “actively engage with the Municipal 

Securities Rulemaking Board (MSRB) and the 

Financial Industry Regulatory Authority (FINRA) 

to finalize their proposals to require dealers to 

provide more information to retail investors so that 

they can see the full transaction costs of purchasing 

or selling a bond, not only commissions or fees 

when a dealer acts as agent, but also markups or 

markdowns when a dealer is acting as a principal.”

Over the longer term, the Committee suggested that 

the Commission work with brokers, FINRA, and 

the MSRB “to get full transaction cost information 

to investors before they purchase or sell a bond.” 

The Committee also encouraged the Commission 

to work with the MSRB and FINRA “to continue 

to improve easy access to price transparency in 

bond markets for retail investors.”
48 | OFFICE OF THE INVESTOR ADVOCATE

COMMISSION RESPONSE. On August 15, 2016, 

and September 7, 2016, FINRA and the MSRB, 

respectively, filed harmonized rule proposals 

with the Commission.278 The proposed rules would 

require disclosure of mark-ups and mark-downs 

based on prevailing market price to retail customers 

for certain transactions in fixed income markets. 

The deadline for Commission action on the 

proposals is after the Reporting Period.

In addition to these steps to address post-trade 

price transparency, SEC and MSRB officials have 

been considering the issue of pre-trade price 

transparency. In October 2015, for example, 

Chair White indicated that work on pre-trade 

price transparency is “ongoing.”279 Then, on 

September 7, 2016, Commissioner Piwowar 

made the following remarks:

I have heard serious concerns that the lack 

of pre-trade transparency is resulting in suboptimal executions for a variety of market 

participants. For example, some market 

participants have complained that, despite 

posting competitive bids on alternative trading 

systems that they believe should execute, often 

no trade occurs. Then, later, these participants 

see trades in the same bonds printed on 

TRACE at inferior prices. Similarly, academic 

research suggests that the lack of pre-trade 

transparency may be a factor in trade-throughs 

occurring in the fixed income markets.280

The Chair of the MSRB, Colleen Woodell, has 

indicated that she intends to start the conversation 

on pre-trade price transparency in the coming 

year.281 Lynnette Kelly, the MSRB’s Executive 

Director, stated that MSRB’s goal would be to 

determine what types of pre-trade information 

would be the most valuable.282

Mutual Fund Cost Disclosure

On April 14, 2016, the Committee recommended 

that the Commission explore ways to improve 

mutual fund cost disclosures, with the goal of 

enhancing investors’ understanding of actual 

costs and the impact of those costs on total 

accumulations over time.283 This should include a 

short-term objective of standardizing the disclosure

of actual dollar amount costs on customer account

statements, and a longer term goal of providing 

context for cost information to improve investor 

understanding of the impact of those costs. The 

Committee encouraged the Commission to test 

various disclosure enhancements to determine 

which would be most effective.

COMMISSION RESPONSE. The Commission 

has not yet responded to this recommendation 

with respect to disclosure of mutual fund costs. 

However, in September 2016, the Commission 

entered into a contract with a vendor to conduct 

a variety of investor testing, including a project 

to examine ways to improve mutual fund fee 

disclosure. In addition, the Commission adopted 

new rules on October 13, 2016, to modernize 

and enhance the reporting and disclosure of other 

information by mutual funds, ETFs and other 

registered investment companies. Among other 

things, registered funds will be required to file a 

new monthly portfolio reporting form.284

Empowering Elders and Other 

Investors: Background Checks in the 

Financial Markets

On July 16, 2015, the Committee recommended 

that the Commission develop a disciplinary 

database that will allow elders and other 

investors to conduct easy searches to determine 

whether a person or firm has been sanctioned for 

securities law violations.285 More specifically, they 
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 49

recommended that the Commission take steps 

to simplify the search process, including steps to 

ensure comparable quality between BrokerCheck 

and the Investor Advisor Public Disclosure (IAPD

system. They also encouraged the Commission 

to seek agreement from other federal regulators, 

self-regulatory organizations, and state regulators 

for the development of a single site that will permi

a search of all relevant databases that provide 

background information on financial market 

professionals.

COMMISSION RESPONSE. While the Commissio

has not yet given an official response to this reco

mendation, our Office is aware that Commission 

staff has been working actively across several 

divisions and with other stakeholders to address 

the recommendation.

) 

t 

n 

mShortening the Trade Settlement 

Cycle in U.S. Financial Markets

This recommendation, adopted February 12, 2015, 

calls for shortening the security settlement period 

in U.S. financial markets from three days after the 

trade date (referred to as T+3) to one day (T+1) 

for at least transactions in U.S. equities, corporate 

and municipal bonds, unit investment trusts, and 

security-based swaps.286 A shorter settlement 

cycle, the Committee maintained, would reduce 

the overall level of systemic risk in the financial 

system and would directly benefit retail investors, 

among others.287 The Committee acknowledged 

that a move from T+3 to T+2, as proposed by the 

Depository Trust & Clearing Corporation (DTCC), 

was a step in the right direction, but the Committee 

urged the Commission “to work with industry 

participants to create a clear plan for moving to 

T+1 in an expedited fashion rather than pausing at 

T+2 for an indeterminate period of time.”288

COMMISSION RESPONSE. On September 28, 

2016, the Commission voted to release for public 

comment a proposed rule to shorten the 

standard settlement cycle for most broker-dealer 

securities transactions from T+3 to T+2 (Proposing 

Release). Comments were due on December 5, 

2016.289

The Proposing Release and the statements made 

by the Commissioners during the public meeting 

reflected consideration of the IAC recommendation. 

Chair White and both Commissioners raised the 

possibility of further shortening the settlement cycle 

in their remarks at the open meeting.290

The Proposing Release, however, cited several 

reasons for the Commission’s preliminary belief 

that T+2 was the appropriate step to take at this 

time. For example, a move to an even shorter cycle 

would require larger investments, lead time, and 

coordination by market participants, which would 

delay the realization of the expected risk-reducing 

benefits. Furthermore, a cycle shorter than T+2 

would increase funding costs for those seeking to 

fund a cross-border securities transaction with the 

proceeds of a foreign currency transaction, because 

such transactions are settled on T+2 basis.291

The Proposing Release did not address 

municipal securities, corporate bonds, or unit 

investment trusts. However, on April 29, 2016, 

the Commission issued an order approving 

an MSRB proposal to require T+2 settlement 

for municipal securities.292 In addition, FINRA 

has proposed rule changes that would amend 

the definition of “regular way” settlement as 

occurring on T+2, and this proposal would apply 

to U.S. secondary market transactions in equities, 

corporate and municipal bonds, unit investment 

trusts, and financial instruments composed of 

these products.293 FINRA held a comment period 

that ended April 4, 2016, but as of the end of this 

Reporting Period, FINRA had not yet filed that 

proposal with the Commission.
50 | OFFICE OF THE INVESTOR ADVOCATE

With respect to security-based swaps, the 

Commission’s Proposing Release noted that they 

currently enjoy temporary exemptive relief from 

compliance with Rule 15c6-1, but that exemption 

is set to expire on February 5, 2017. The Release 

asks whether the exemption should be extended.294

Impartiality in the Disclosure 

of Preliminary Voting Results

Exchange Act Rule 14a-2(a)(1) provides an 

exemption from the proxy rules for brokers that 

forward proxy materials to shareholders who own 

shares in “street name.”295 On October 9, 2014, 

the IAC adopted a recommendation that the staff 

of the Commission take the steps necessary to 

ensure that the exemption is conditioned upon 

the broker (and any intermediary designated by 

the broker) acting in an impartial and ministerial 

fashion throughout the proxy process, and that any 

broker who uses an intermediary take reasonable 

steps to verify that the intermediary is not subject 

to impermissible conflicts of interest.296 In adopting 

these recommendations, the IAC noted several 

concerns about current industry practices, 

including the disclosure of preliminary voting 

results to issuers while the results are withheld 

from exempt solicitors, as well as possible conflicts 

of interest between the issuer and the broker’s 

designated intermediary.

COMMISSION RESPONSE. The Commission 

has not yet responded to this recommendation.

The Accredited Investor Definition

On October 9, 2014, the IAC adopted a set of 

recommendations related to the Commission’s 

review of the accredited investor definition as 

required by the Dodd-Frank Act.297 The Committee 

encouraged the Commission to determine 

whether the current definition achieves the goal 

of identifying a class of individuals who do not 

need the protections afforded by the Securities 

Act of 1933 because they are sufficiently able to 

protect their own interests. If, as the IAC expected,

the analysis were to reveal a failure to meet that 

goal, then the Committee recommended prompt 

rulemaking to revise the definition. In doing so, 

the Commission should revise the definition to 

enable individuals to qualify as accredited investors 

based on their financial sophistication. However, 

if the Commission chooses to continue relying on 

financial thresholds, it should consider limiting 

investments in private offerings to a percentage of 

assets or income.

In addition to any changes to the accredited 

investor standard, the Committee urged the 

Commission to encourage development of an 

alternative means of verifying accredited investor 

status—one that shifts the burden away from 

issuers. The Commission also should strengthen 

the protections that apply when non-accredited 

individuals, who do not otherwise meet the 

sophistication test for such investors, qualify to 

invest solely by virtue of relying on advice from a 

purchaser representative. 

COMMISSION RESPONSE. On December 18, 

2015, the Commission issued a staff report 

(Report) analyzing various approaches for 

modifying the definition of an accredited investor.298

The Report considered comments received from 

the Investor Advisory Committee, as well as from 

the Advisory Committee on Small and Emerging 

Companies and others. The Report remains open 

for comment from the public, with no set deadline 

for comments.

The Report recommended that the Commission 

consider one or more of several ways to revise 

the financial thresholds requirements for natural 

persons to qualify as accredited investors. The 

first approach was in accord with the IAC’s 

recommendation to limit investments in private 
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 51

offerings to a percentage of assets or income. 

The Report recommended that the Commission 

consider limiting investments for individuals who 

qualify as accredited investors solely based on those 

thresholds to a percentage of their income or net 

worth (e.g., 10 percent of prior year income or 

10 percent of net worth, as applicable, per issuer, 

in any 12-month period).299 This approach would 

leave the current income and net worth thresholds 

in the accredited investor definition in place.

The Report proposed that the Commission 

consider two further changes to financial 

thresholds: first, to adjust the income and net 

worth thresholds for inflation (such as $500,000 

for individual income, $750,000 for joint income, 

and $2.5 million for net worth);300 and, second, to 

index financial thresholds going forward.301

The Report also recommended that the 

Commission consider revising the Accredited 

Investor Definition to allow individuals to qualify 

as accredited investors based on measures of 

sophistication other than financial measures. 

The Report offered a menu of options by which 

individuals would qualify as accredited investors, 

including by having certain investment experience 

or professional credentials.302

Crowdfunding

At its meeting on April 10, 2014, the IAC adopted

a package of six recommendations, which were 

intended to strengthen the Commission’s proposed 

rules to implement the crowdfunding provisions 

of the JOBS Act.303 The Committee stated that 

its recommendations would better ensure that 

investors understand the risks of crowdfunding and 

avoid unaffordable financial losses. 

On October 30, 2015, the Commission 

adopted final rules to permit companies to offer 

and sell securities through crowdfunding.304

Therefore, the Commission’s response to the IAC 

recommendations is complete. Please see our 

Report on Objectives for Fiscal Year 2017 for an 

analysis of how the final rules correspond with the 

IAC recommendations.305

Decimalization and Tick Sizes 

On January 31, 2014, the IAC adopted a 

resolution opposing any test or pilot programs 

to increase the minimum quoting and trading 

increments (tick sizes) in the securities markets.306

The resolution argued that larger tick sizes 

would disproportionately harm retail investors 

by raising prices without achieving the goals of 

improved research coverage or liquidity of smallcap companies.
52 | OFFICE OF THE INVESTOR ADVOCATE

If, however, the SEC were to decide to pursue a 

pilot program of increasing tick sizes, the IAC 

made three more recommendations: to limit the 

pilot program’s duration, with a short “sunset” on 

the pilot unless benefits were proven to outweigh 

the costs; to conduct a careful evaluation of costs 

and benefits to investors, with a particular focus 

on retail investors; and to pilot other competitionbased measures designed to encourage trading and 

capital formation.

COMMISSION RESPONSE. Implementation of 

a two-year pilot program began on October 3, 

2016.307 The start of the pilot program follows 

Commission action on June 24, 2014, when it 

directed the national securities exchanges and 

FINRA (collectively, SROs) to submit a plan for 

a pilot program to test a tick size of 5 cents per 

share in three groups of securities. 308 That plan 

was submitted in August 2014, and in May 2015 

it was approved by the Commission with certain 

modifications, including an increase in the duration 

of the pilot program (from one year to two) and 

a reduction in the size of companies (lowering the 

market capitalization threshold from $5 billion to 

$3 billion). 309

The Commission’s order in May 2015 specifically 

referenced the IAC recommendations. Though 

it did not adopt the IAC’s recommendations, the 

Commission stated that it had carefully considered 

them. The Commission also took note of the IAC’s 

“concern that a pilot would disproportionately 

harm retail investors because their trading costs 

would rise.”310

Legislation to Fund Investment 

Adviser Examinations

On November 22, 2013, the IAC recommended 

that the SEC request legislation from Congress 

that would authorize the Commission to impose 

user fees on SEC-registered investment advisers 

to provide a scalable source of funding for more 

frequent compliance examinations of advisers.311

The IAC asserted that the examination cycle for 

SEC-registered investment advisers was “simply 

inadequate to detect or credibly deter fraud.”312

COMMISSION RESPONSE. Though it has 

never made a statement requesting user fees, the 

Commission has made funding for increased 

coverage of investment adviser exams a top 

priority every year since FY 2015. Each year, 

the Commission has requested funding to hire 

additional examiners in the SEC Office of 

Compliance Inspections and Examinations (OCIE): 

the FY 2015 Budget Request called for funding 

to support an increase of 316 OCIE examiner 

positions;313 the FY 2016 Budget Request, an 

increase of 225 OCIE examiners;314 and the 

FY 2017 Budget Request, an increase of 127 

OCIE examiners.315

In addition to adding new examiners when new 

resources become available, OCIE is in the process 

of converting some staff from its broker-dealer 

examination program to the investment adviser/

investment company program, with the goal 

of increasing staff for the latter by roughly 

20 percent.316

At its April 14, 2016, meeting, the IAC received an 

update from OCIE Director Marc Wyatt and Peter 

Driscoll, OCIE Chief Risk and Strategy Officer. 

Wyatt argued that it would be a mistake to assume 

that the 10 percent coverage rate in the Investor 

Adviser/Investment Company program means that 

the other 90 percent go untouched.317

Chair White, speaking at the same meeting, 

reminded the IAC that she had directed 

Commission staff to develop a recommendation 

to establish a program of independent, third-party 

compliance assessments for registered investment 
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 53

advisers. She said that the reviews would not be in 

lieu of exams by OCIE staff, but rather would be 

designed to enhance investment adviser compliance 

through an independent review.318

Broker-Dealer Fiduciary Duty

On November 22, 2013, the IAC adopted a set 

of recommendations encouraging the SEC to 

establish a fiduciary duty for broker-dealers when 

they provide personalized investment advice 

to retail investors.319 The Committee preferred 

to accomplish this objective by narrowing the 

exclusion for broker-dealers within the definition 

of an “investment adviser” under the Investment 

Advisers Act of 1940. As an alternative, the 

Committee recommended the adoption of a rule 

under Section 913 of the Dodd-Frank Act to 

require broker-dealers to act in the best interests of 

their retail customers when providing personalized 

investment advice, with sufficient flexibility to 

permit certain sale-related conflicts of interest that 

are fully disclosed and appropriately managed. 

In addition, the Committee recommended the 

adoption of a uniform, plain English disclosure 

document to be provided to customers and 

potential customers of broker-dealers and 

investment advisers. The document would disclose 

information about the nature of services offered, 

fees and compensation, conflicts of interest, and 

the disciplinary record of the broker-dealer or 

investment adviser. 

COMMISSION RESPONSE. In March 2015, Chair 

White announced her belief that broker-dealers 

and investment advisers should be subject to a 

uniform fiduciary standard of conduct when 

providing personalized securities advice to retail 

investors. In Congressional testimony, she stated 

that she would soon begin discussing the issue with 

fellow Commissioners, and that she had asked 

Commission staff to develop rulemaking recommendations for Commission consideration.320 She 

made similar remarks at a subsequent meeting of 

the IAC.321

In September 2016, Chair White indicated that SEC 

staff had completed a detailed outline proposing a 

fiduciary duty rule, which had been circulated to 

the SEC commissioners. She cautioned, however, 

that a vote was not imminent.322

Universal Proxy Ballots

On July 25, 2013, the IAC adopted a 

recommendation urging the SEC to explore 

the relaxation of the “bona fide nominee rule” 

(Rule 14a-4(d)(1)) to provide proxy contestants 

with the option, but not the obligation, to use 

Universal Ballots in connection with short slate 

director nominations.323 The IAC also encouraged 

the Commission to hold one or more roundtable 

discussions on the topic.

COMMISSION RESPONSE. On October 26, 2016, 

following this Reporting Period, the Commission 

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.324 The proposal would 

give shareholders the ability to vote by proxy for 

their preferred combination of board candidates, 

similar to voting in person. Our next report to 

Congress will provide details on this proposal and 

how it relates to the IAC recommendation. Previously, on February 19, 2015, the Commission 

held a Proxy Voting Roundtable to explore issues 

related to proxy voting, including the use of 

universal proxies.325

Data Tagging

At its meeting on July 25, 2013, the IAC adopted 

a recommendation for the SEC to promote the 

collection, standardization, and retrieval of data 

filed with the SEC using machine-readable data 

tagging formats.326 The Committee urged the SEC 

to take steps to reduce the costs of providing tagged 

data, particularly for smaller issuers and investors, 

by developing applications that allow users to enter 

information on forms that can be converted to 

machine-readable formats by the SEC. In addition, 
54 | OFFICE OF THE INVESTOR ADVOCATE

the IAC recommended that the SEC give priority 

to the data tagging of disclosures on corporate 

governance, including information about executive 

compensation and shareholder voting.

COMMISSION RESPONSE. Since the IAC recommendation was adopted, the Commission has 

addressed data tagging in a number of final and 

proposed rules.

Availability of the Inline XBRL Format. On June 

13, 2016, the Commission issued an order allowing 

companies to voluntarily file structured financial 

statement data in a format known as Inline XBRL, 

which is both human-readable and machinereadable.327 The order asserts that the format 

should decrease filing preparation costs, improve 

the quality of structured data, and, by improving 

data quality, increase the use of XBRL data by 

investors and other market participants. 

Pay Ratio Disclosure. The Commission passed on 

the opportunity to incorporate data tagging in the 

final rule on pay ratio disclosure, noting: “We did 

not propose to require that the pay ratio disclosure 

be provided in interactive data format, and are not 

adopting such a requirement for this disclosure. 

To the extent that we consider more generally the 

tagging of disclosures in XBRL format in our rules, 

we may consider revisiting the format in which the 

pay ratio disclosure is provided.”328

Regulation S-K Concept Release. On April 15, 

2016, the Commission published a concept release 

on modernizing business and financial disclosure.329

The release features a lengthy discussion concerning 

whether our disclosure requirements continue to 

provide investors with the information needed to 

make informed investment and voting decisions. 

Notably, in a section on “Presentation and Delivery 

of Important Information,” the Commission 

requested public input on the use of structured data 

and other available standards and technologies that 

could enhance the quality of disclosure to investors 

while reducing burdens on registrants.

Disclosure of Payments by Resource Extraction 

Issuers. On June 27, 2016, the Commission 

adopted rules to require resource extraction 

issuers to disclose payments made to governments 

for the commercial development of oil, natural 

gas or minerals.330 The rules require the payment 

disclosure to be provided in a structured 

data format.

Property Disclosures for Mining Companies. 

On June 16, 2016, the Commission proposed 

rules to update the disclosure requirements for 

mining companies currently found in Item 102 of 

Regulation S-K and related guidance in Industry 

Guide 7.331 Although data tagging is not a feature 

of the proposed rules, the Commission posed 

questions for public comment on whether it should 

in the future require certain disclosures to be made 

available in a structured data format.

Investment Company Reporting Modernization.

On October 13, 2016, the Commission adopted 

rules to modernize and enhance the reporting 

and disclosure of information by registered 

investment companies and to enhance liquidity risk 

management by open-end funds, including mutual 

funds and ETFs.332 The new rules require registered 

funds to report portfolio and census information in 

a structured data format.

Disclosure of Order Handling Information. 

On July 13, 2016, the Commission proposed to 

amend Rules 600 and 606 of Regulation NMS to 

require a broker-dealer to make publicly available 

aggregated information with respect to its handling 

of customers’ institutional orders for each calendar 

quarter.333 The proposed amendments would 

require that the report be made available using 

an XML schema and associated PDF renderer 

to be published on the Commission’s Web site. 

Requiring the report to be provided in XML should 

result in the data in the report being provided in a 

consistent, structured format that would facilitate 

search capabilities and statistical and comparative 

analyses across broker-dealers and date ranges.
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 55

Earlier rulemakings. As detailed in our previous 

Reports to Congress,334 the Commission has 

incorporated structured data requirements in 

previous rulemakings, including ones related 

to security-based swap data repositories,335

registration of security-based swap dealers,336

alternative trading systems,337 the use of derivatives 

by registered investment companies,338 clawbacks 

of erroneously awarded executive compensation,339

Regulation A,340 crowdfunding,341 asset-backed 

securities disclosure and registration,342 liquidity 

risk of mutual funds,343 and money market funds.344

Target Date Mutual Funds

On April 11, 2013, the IAC adopted 

recommendations for the Commission to revise 

its proposed rule regarding target date retirement 

fund names and marketing.345 The package of five 

IAC recommendations pertained to a 2010 SEC 

proposal that would, among other things, require 

marketing materials for target date retirement 

funds to include a table, chart, or graph depicting 

the fund’s asset allocation over time (i.e., an asset 

allocation glide path).346

As either a replacement for or supplement to 

the SEC’s proposed asset allocation glide path 

illustration, the IAC recommended that the 

Commission develop a glide path illustration 

that would be based on a measure of fund risk. 

To promote comparability between funds, the 

IAC recommended the adoption of standard 

methodologies to be used in glide path illustrations. 

In addition, the IAC urged the Commission to 

require clearer disclosure about the risk of loss, the 

cumulative impact of fees, and the assumptions 

used to design and manage the funds.

COMMISSION RESPONSE. 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.347 The comment period 

closed on June 9, 2014, and a final rule has not yet 

been adopted.

General Solicitation and Advertising

On October 12, 2012, the IAC adopted a set of 

seven recommendations concerning rulemaking to 

lift the ban on general solicitation and advertising 

in offerings conducted under Rule 506.348 The 

IAC asserted that the recommendations would 

strengthen investor protections and enhance 

regulators’ ability to police the private placement 

market.

COMMISSION RESPONSE. On July 10, 2013, the 

Commission adopted final rules permitting general 

solicitation and advertising in Rule 506 offerings349

and disqualifying offerings involving felons and 

other bad actors.350 In addition, the Commission 

proposed a rule to enhance the Commission’s 

ability to evaluate the development of market 

practices in Rule 506 offerings and to address 

concerns that may arise because the ban on general 

solicitation was lifted.351 The majority of the IAC 

recommendations relate to the proposed rule, 

which has not yet been adopted.
56 | 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 See SEC, Office of the Investor Advocate, Report on 

Objectives, Fiscal Year 2016 (June 30, 2015) [hereinafter 

Report on Objectives, Fiscal Year 2016], http://www.

sec.gov/advocate/reportspubs/annual-reports/sec-officeinvestor-advocate-report-on-objectives-fy2016.pdf. 

4 See 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-officeinvestor-advocate-report-on-objectives-fy2017.pdf. 

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

6 Id. Exchange Act Section 4(g)(6)(B) requires the Report 

on Activities to include an “inventory” of the most 

serious problems encountered by investors during the 

Reporting Period. The inventory must identify any 

action taken by the Commission or an SRO to resolve 

each problem, the length of time that each item has 

remained on our inventory and, for items on which no 

action has been taken, the reasons for inaction and an 

identification of any official who is responsible for such 

action. Because the Office of the Investor Advocate is 

new, this Report on Activities is the first to describe 

problems, recommendations, and resulting actions.

Therefore, we do not set forth a separate inventory 

of pre-existing items.

7 These SRO rule proposals mostly fall into two categories.

The larger category includes what are known as B3A 

filings, a shorthand reference to Section 19(b)(3)(A) 

of the Exchange Act. 15 U.S.C. § 78s(b)(3)(A) (2016).

Generally speaking, these are more technical in nature 

and expected to be non-controversial. They may 

change fees or extend the length of a pilot program.

These rule changes become effective upon filing with 

the Commission and are subsequently published for 

comment. The second category is known as B2 filings, 

referencing Section 19(b)(2) of the Exchange Act. 15 

U.S.C. § 78s(b)(2) (2016). These include the more 

substantive rule proposals, such as changes to the listing 

standards of an exchange, the priority of bids and offers 

on the exchange, and new order types and instructions.

These proposals are published for public comment prior 

to their approval or disapproval by the Commission.

During FY2016, our Office focused its resources on 

analyzing the latter category’s potential impact on 

investors, but remained vigilant for significant filings 

outside of the B2 filing context.

8 Report on Objectives, Fiscal Year 2016, supra note 3. 

9 The Office of the Investor Advocate was established 

pursuant to Section 915 of the Dodd-Frank Wall 

Street Reform and Consumer Protection Act of 2010 

(Dodd-Frank Act). On February 24, 2014, SEC Chair 

Mary Jo White appointed Rick A. Fleming as the 

Commission’s first Investor Advocate.

10 See Mary Jo White, Chair, SEC, Speech at Sandler 

O’Neill & Partners, L.P. Global Exchange and Brokerage 

Conference: Enhancing Our Equity Market Structure 

(June 5, 2014), http://www.sec.gov/News/Speech/Detail/

Speech/1370542004312.

11 See Regulation of NMS Stock Alternative Trading 

Systems, Exchange Act Release No. 76,474, 80 Fed. Reg. 

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

“NMS Stock ATS Proposing Release”].

12 See NMS Stock ATS Proposing Release, supra note 11, 

at 81,042 n.374.

13 See NMS Stock ATS Proposing Release, supra note 11.

14 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/investoradvocate-comment-letter-regulation-ats.pdf.

15 See id. 

16 Regulation NMS, Exchange Act Release No. 51,808, 70 

Fed. Reg. 37,495 (adopted June 29, 2005) [hereinafter 

“Regulation NMS”]. 

17 See Disclosure of Order Handling Information, Exchange 

Act Release No. 78,309, 81 Fed. Reg. 49,431 (proposed 

July 27, 2016). 

18 See id.

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

20 See BATS Exchange, Inc.; Notice of Filing of a Proposed 

Rule Change, as Modified by Amendment No. 1 

Thereto, to Adopt New Rule 8.17 to Provide a Process 

for an Expedited Suspension Proceeding and Rule 12.15 

to Prohibit Layering and Spoofing on BATS Exchange, 

Inc., Exchange Act Release No. 76,470, 80 Fed. Reg. 

73,247 (published Nov. 24, 2015).

21 See Comment Letter, Rick A. Fleming, Investor 

Advocate, SEC, RE: File No. SR-BATS-2015-101, (Dec. 

15, 2015), https://www.sec.gov/about/offices/investorad/

comment-letter-bats-investor-advocate-121515.pdf.

22 See BATS Exchange, Inc.; Order Granting Approval of a 

Proposed Rule Change, as Modified by Amendment No. 

1 Thereto, to Adopt New Rule 8.17 to Provide a Process 

for an Expedited Suspension Proceeding and Rule 12.15 

to Prohibit Layering and Spoofing on BATS Exchange, 

Inc., Exchange Act Release No. 77,171, 81 Fed. Reg. 

9,017 (published Feb. 23, 2016).

23 See Bats EDGX Exchange, Inc.; Notice of Filing and 

Immediate Effectiveness of a Proposed Rule Change to 

Adopt Rule 8.17 to Provide a Process for an Expedited 

Suspension Proceeding and Rule 12.15 to Prohibit 

Layering and Spoofing, Exchange Act Release No. 

77,589, 81 Fed. Reg. 22,691 (published Apr. 18, 
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 57

2016); Bats BYX Exchange, Inc.; Notice of Filing and 

Immediate Effectiveness of a Proposed Rule Change to 

Adopt Rule 8.17 to Provide a Process for an Expedited 

Suspension Proceeding and Rule 12.15 to Prohibit 

Layering and Spoofing, Exchange Act Release No. 

77,602, 81 Fed. Reg. 23,046 (published Apr. 19, 2016); 

and Bats EDGA Exchange, Inc.; Notice of Filing and 

Immediate Effectiveness of a Proposed Rule Change to 

Adopt Rule 8.17 to Provide a Process for an Expedited 

Suspension Proceeding and Rule 12.15 to Prohibit 

Layering and Spoofing, Exchange Act Release No. 

77,606, 81 Fed. Reg. 23,026 (published Apr. 19, 2016). 

24 See The NASDAQ Stock Market LLC; Notice of Filing 

and Immediate Effectiveness of Proposed Rule Change 

to Provide a Process for an Expedited Suspension 

Proceeding and Adopt a Rule to Prohibit Disruptive 

Quoting and Trading Activity, Exchange Act Release No. 

77,913, 81 Fed. Reg. 35,081 (published June 1, 2016); 

and NASDAQ BX, Inc.; Notice of Filing and Immediate 

Effectiveness of Proposed Rule Change to Provide a 

Process for an Expedited Suspension Proceeding and 

Adopt a Rule to Prohibit Disruptive Quoting and 

Trading Activity, Exchange Act Release No. 77,914, 81 

Fed. Reg. 35,106 (published June 1, 2016). 

25 See NASDAQ BX, Inc.; Notice of Filing and Immediate 

Effectiveness of Proposed Rule Change to Provide a 

Process for an Expedited Suspension Proceeding and 

Adopt a Rule to Prohibit Disruptive Options Quoting 

and Trading Activity, Exchange Act Release No. 78,107, 

81 Fed. Reg. 41,619 (published June 27, 2016); The 

NASDAQ Stock Market LLC; Notice of Filing and 

Immediate Effectiveness of Proposed Rule Change 

to Provide a Process for an Expedited Suspension 

Proceeding and Adopt a Rule to Prohibit Disruptive 

Quoting and Trading Activity, Exchange Act Release No. 

78,208, 81 Fed. Reg. 44,366 (published July 7, 2016); 

and International Securities Exchange, LLC; Notice of 

Filing and Immediate Effectiveness of Proposed Rule 

Change to Adopt a Rule to Prohibit Disruptive Quoting 

and Trading Activity and Allow the Exchange to Take 

Prompt Action, Exchange Act Release No. 78,920, 81 

Fed. Reg. 67,038 (published Sept. 29, 2016). 

26 See FINRA, Process for an Expedited Proceeding and 

Adopt a Rule to Prohibit Disruptive Quoting and 

Trading Activity, Exchange Act Release No. 79,361 

(Nov. 21, 2016).

27 See New York Stock Exchange LLC; NYSE MKT LLC; 

Notice of Filings of Amendment No. 1, and Order 

Granting Accelerated Approval of Proposed Rule 

Changes, as Modified by Amendment No. 1, to Provide 

for How the Exchanges Would Determine an Official 

Closing Price if the Exchanges Are Unable to Conduct a 

Closing Transaction, Exchange Act Release No. 78,014, 

81 Fed. Reg. 38,755 (published June 14, 2016), and New 

York Stock Exchange LLC; NYSE MKT LLC; Notice 

of Filings of Amendment No. 1, and Order Granting 

Accelerated Approval of Proposed Rule Changes, as 

Modified by Amendment No. 1, to Provide for How 

the Exchanges Would Determine an Official Closing 

Price if the Exchanges Are Unable to Conduct a Closing 

Transaction, Exchange Act Release No. 78,015, 81 Fed. 

Reg. 38,747 (published June 14, 2016).

28 In December 2015, Commission staff published a 

research note concerning the price volatility during the 

period surrounding the start of regular trading hours for 

the equity markets, thereby allowing market participants 

and the public to better understand what had occurred.

See SEC, Staff of the Office of Analytics and Research, 

Division of Trading and Markets, Research Note: 

Equity Market Volatility on August 24, 2015 (December 

2015), https://www.sec.gov/marketstructure/research/

equity_market_volatility.pdf.

29 The NYSE Arca exchange widened its opening and 

re-opening auction collars that had previously limited 

the extent to which those auctions arrived at market 

clearing prices. See Self-Regulatory Organizations; NYSE 

Arca, Inc.; Order Approving Proposed Rule Change to 

Provide for Price Collar Thresholds for Trading Halt 

Auctions, Exchange Act Release No. 76,994, 81 Fed. 

Reg. 5,809 (published Feb. 3, 2016). NYSE extended 

the time period for the dissemination of pre-opening 

imbalance information, reduced the delays associated 

with these indications, and gave its market makers more 

flexibility to conduct automated openings during broad 

market volatility and to electronically re-open trading 

after a pause. See Self-Regulatory Organizations; New 

York Stock Exchange LLC; Notice of Filing of Partial 

Amendment No. 3 and Order Granting Accelerated 

Approval of a Proposed Rule Change, as Modified by 

Amendments No. 2 and 3, Relating to Pre-Opening 

Indications and Opening Procedures, Exchange Act 

Release No. 78,228, 81 Fed. Reg. 44,907 (published 

July 11, 2016). FINRA and the exchanges have also 

taken steps to enhance the existing limit-up/limit-down 

pilot program. See Joint Industry Plan; Order Approving 

the Tenth Amendment to the National Market System 

Plan to Address Extraordinary Market Volatility by Bats 

BZX Exchange, Inc., Bats BYX Exchange, Inc., Chicago 

Stock Exchange, Inc., Bats EDGA Exchange, Inc., Bats 

EDGX Exchange, Inc., Financial Industry Regulatory 

Authority, Inc., NASDAQ BX, Inc., NASDAQ PHLX 

LLC, The Nasdaq Stock Market LLC, National Stock 

Exchange, Inc., New York Stock Exchange LLC, NYSE 

MKT LLC, and NYSE Arca, Inc., Exchange Act Release 

No. 77,679, 81 Fed. Reg. 24,908 (published Apr. 27, 

2016) (modifying the definition of opening price in 

cases where the primary listing exchange opens with 

quotations rather than a transaction, and extending 

the pilot for another year to continue to consider the 

data). See also Self-Regulatory Organizations; Financial 

Industry Regulatory Authority, Inc.; Notice of Filing and 

Immediate Effectiveness of a Proposed Rule Change to 

Clarify the Operation of the Regulation NMS Plan to 
58 | OFFICE OF THE INVESTOR ADVOCATE

Address Extraordinary Market Volatility, Exchange Act 

Release No. 78,435, 81 Fed. Reg. 51,239 (published 

Aug. 3, 2016), and Self-Regulatory Organizations; 

Financial Industry Regulatory Authority, Inc.; Notice of 

Filing and Immediate Effectiveness of a Proposed Rule 

Change to Extend the Effective Date of SR-FINRA-2016-

028, Exchange Act Release No. 78,660, 81 Fed. Reg. 

59,676 (published Aug. 30, 2016) (FINRA amendment 

providing that following a trading pause triggered by 

limit-up/limit-down, the exchanges will either wait for 

the SIP to disseminate the new price bands or calculate 

the new price bands themselves before commencing 

trading). Chair Mary Jo White has asked that the 

SROs continue to consider additional enhancements. 

See, e.g., Mary Jo White, Chair, SEC, Keynote Address 

at the Securities Traders Association 83rd Annual 

Market Structure Conference: Equity Market Structure 

in 2016 and for the Future (Sept. 14, 2016), https://

www.sec.gov/news/speech/white-equity-marketstructure-2016-09-14.html.

30 See Financial Industry Regulatory Authority, Inc.; 

Order Approving a Proposed Rule Change to Require 

Registration as Securities Traders of Associated Persons 

Primarily Responsible for the Design, Development, 

Significant Modification of Algorithmic Trading 

Strategies or Responsible for the Day-to-Day Supervision 

of Such Activities, Exchange Act Release No. 77,551, 81 

Fed. Reg. 21,914 (published Apr. 13, 2016).

31 See id.

32 See Financial Industry Regulatory Authority, Inc.; Order 

Approving a Proposed Rule Change to Reduce the 

Synchronization Tolerance for Computer Clocks That 

Are Used to Record Events in NMS Securities and OTC 

Equity Securities, Exchange Act Release No. 77,565, 81 

Fed. Reg. 22,136 (published Apr. 14, 2016).

33 See id.

34 See Financial Industry Regulatory Authority, Inc.; Order 

Approving a Proposed Rule Change to Adopt FINRA 

Rule 4554, Alternative Trading Systems-Recording 

and Reporting Requirements of Order and Execution 

Information for NMS Stocks, Exchange Act Release No. 

77,798, 81 Fed. Reg. 30,395 (published May 16, 2016).

35 See Joint Industry Plan; Order Approving the National 

Market System Plan Governing the Consolidated Audit 

Trail, Exchange Act Release No. 79,318 (Nov. 15, 2016), 

https://www.sec.gov/rules/sro/nms/2016/34-79318.pdf.

36 See Self-Regulatory Organizations; Chicago Stock 

Exchange, Inc.; Order Granting Accelerated Approval of 

a Proposed Rule Change, as Modified by Amendment 

No. 1 Thereto, to Adopt and Implement CHX SNAP, an 

Intra-day and On-Demand Auction Service, Exchange 

Act Release No. 76,087, 80 Fed. Reg. 61,540 (published 

Oct. 13, 2015).

37 See Chicago Stock Exchange, Customer Service 

Notification, http://www.chx.com/customer-servicenotifications/snap-auctions-to-begin-friday-june-3-2016

(last visited Oct. 1, 2016).

38 See Chicago Stock Exchange, SNAP Auction Results, 

http://www.chx.com/snap/market-activity/ (last visited 

Oct. 1, 2016).

39 See In the Matter of the Application of Investors’ 

Exchange, LLC for Registration as a National Exchange, 

Exchange Act Release No. 78,101, 81 Fed. Reg. 

41,142 (published June 23, 2016); see also Commission 

Interpretation Regarding Automated Quotations Under 

Regulation NMS, Exchange Act Release No. 78,102, 81 

Fed. Reg. 40,785 (published June 23, 2016).

40 See Self-Regulatory Organizations; Chicago Stock 

Exchange, Inc.; Notice of Filing of Proposed Rule 

Change to Adopt the CHX Liquidity Taking Access 

Delay, Exchange Act Release No. 78,860, 81 Fed. Reg. 

65,442 (published Sept. 22, 2016).

41 See Annie Massa, Simplicity Is the Goal of Nasdaq’s 

New Order Type, CEO Says, Bloomberg (Aug. 15, 

2016), https://www.bloomberg.com/news/articles/

2016-08-15/simplicity-is-the-goal-of-nasdaq-s-neworder-type-ceo-says.

42 See Joint Industry Plans; Order Approving the National 

Market System Plan to Implement a Tick Size Pilot 

Program by BATS Exchange, Inc., BATS Y-Exchange, 

Inc., Chicago Stock Exchange, Inc., EDGA Exchange, 

Inc., EDGX Exchange, Inc., Financial Industry 

Regulatory Authority, Inc., NASDAQ OMX BX, Inc., 

NASDAQ OMX PHLX LLC, The Nasdaq Stock 

Market LLC, New York Stock Exchange LLC, NYSE 

MKT LLC, and NYSE Arca, Inc., as Modified by the 

Commission, for a Two-Year Period, Exchange Act 

Release No. 74,892, 80 Fed. Reg. 27,513 (published 

May 13, 2015).

43 See Exemption Under Rule 608(e) of Regulation NMS 

from a Certain Provision of the Plan to Implement a Tick 

Size Pilot Program (Sep. 13, 2016), https://www.sec.gov/

divisions/marketreg/mr-noaction/2016/exemption-608etick-size-pilot-091316.pdf. 

44 See SEC, Press Release, SEC Announces Members of 

New Equity Market Structure Advisory Committee, 

2015-5 (Jan. 13, 2015), http://www.sec.gov/news/

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

Structure Advisory Committee website, https://www.

sec.gov/spotlight/equity-market-structure-advisorycommittee.shtml (last visited Oct. 1, 2016).

45 See SEC, EMSAC, Recommendation for an Access Fee 

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

recommendation-access-fee-pilot.pdf. 

46 See SEC, Press Release, Barclays, Credit Suisse Charged 

With Dark Pool Violations, 2016-16 (Jan. 31, 2016), 

https://www.sec.gov/news/pressrelease/2016-16.html

(Credit Suisse settled without admission, Barclays settled 

with admission).
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 59

47 See id.

48 See SEC, Press Release, Merrill Lynch Charged with 

Trading Controls Failures That Led to Mini-Flash 

Crashes, 2016-192 (Sept. 26, 2016), https://www.sec.

gov/news/pressrelease/2016-192.html (settled without 

admission).

49 See SEC, Press Release, Citigroup Provided Incomplete 

Blue Sheet Data for 15 Years, 2016-138 (July 12, 2016), 

https://www.sec.gov/news/pressrelease/2016-138.html

(penalized with admission).

50 See Exchange Act Release No. 78291 (July 12, 2016), 

https://www.sec.gov/litigation/admin/2016/34-78291.pdf. 

51 See, e.g., SEC, Press Release, SEC Charges Firm and 

Owner With Manipulative Trading, 2015-236 (Oct. 8, 

2015), https://www.sec.gov/news/pressrelease/2015-236.

html (settled without admission against a proprietary 

trading firm for, over the course of more than a year, 

placing sham orders to manipulate the price of stocks 

and take advantage of the price movements). See 

also SEC, Press Release, SEC Announces Charges for 

Spoofing and Order Mismarking, 2015-273 (Dec. 3, 

2015), https://www.sec.gov/news/pressrelease/2015-273.

html (charging and instituting proceedings); and 

Exchange Act Release No. 78043 (Jun. 13, 2016), 

https://www.sec.gov/litigation/admin/2016/33-10094.pdf

(settled an action without admission with two brothers 

that had, as part of their alleged spoofing scheme, 

exploited the maker-taker pricing model on an exchange, 

thereby collecting inappropriate rebates). 

52 On August 6, 2013, the MSRB issued a concept release 

seeking comments on this recommendation, and the 

MSRB subsequently proposed a best execution rule. On 

December 5, 2014, the SEC issued an order approving 

the proposed amendments, and the rule changes are set 

to become effective on December 7, 2015. On November 

20, 2015, the MSRB published implementation guidance 

to assist bond dealers in complying with the MSRB’s 

best execution rule. The MSRB subsequently announced 

it would provide additional guidance about the new 

best execution rule and delayed the effectiveness of the 

rule until 120 days after publication of the interpretive 

guidance. The MSRB’s best execution rule requires 

municipal securities dealers to use “reasonable diligence” 

in seeking to obtain for their retail customers the most 

favorable terms reasonably available under prevailing 

market conditions. See MSRB, Comment Letters, 

Request for Comment on Whether to Require Dealers 

to Adopt a “Best Execution” Standard for Municipal 

Securities Transactions, http://www.msrb.org/Rulesand-Interpretations/Regulatory-Notices/2013/2013-16.

aspx?c=1; MSRB, Regulatory Notice 2014-22, SEC 

Approves MSRB Rule G-18 on Best Execution of 

Transactions in Municipal Securities and Related 

Amendments to Exempt Transactions with Sophisticated 

Municipal Market Professionals (Dec. 8, 2014), http://

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

Announcements/2014-22.ashx?n=1; and Self-Regulatory 

Organizations; Municipal Securities Rulemaking Board; 

Notice of Filing of a Proposed Rule Change Consisting 

of Rule G-18, on Best Execution of Transactions in 

Municipal Securities, and Amendments to Rule G-48, 

on Transactions With Sophisticated Municipal Market 

Professionals (“SMMP”), and Rule D-15, on the 

Definition of SMMP, Exchange Act Release No. 72,956, 

79 Fed. Reg. 53,236 (published Sept. 8, 2014); MSRB, 

Press Release, MSRB Provides Implementation Guidance 

on Best-Execution Rule (Nov. 20, 2015), http://www.

msrb.org/News-and-Events/Press-Releases/2015/

MSRB-Provides-Implementation-Guidance-on-BestExecution-Rule.aspx. 

53 See, e.g., Lynnette Kelly, Executive Director, MSRB, 

Testimony Before the Capital Markets and Government 

Sponsored Enterprises Subcommittee of the House 

Financial Services Committee, Hearing on “Examining 

the Agenda of Regulators, Self-Regulatory Organizations 

and Standards-Setters for Accounting, Auditing, and 

Municipal Securities,” at 6, (Sept. 22, 2016), http://www.

msrb.org/msrb1/pdfs/Testimony-on-Capital-Marketsand-Government-Sponsored-Enterprises.pdf. In her 

testimony, Ms. Kelly highlights several enhancements to 

EMMA including, “adding analytical tools and resources 

to improve retail investor access to market information, 

such as a price discovery tool to help investors find and 

compare prices of securities with similar characteristics; 

graphical displays to explore trade data, prices and 

trends; initial offering price and yield information; 

expanded access to credit ratings; advanced search 

functionality; an economic calendar with descriptions 

of upcoming macroeconomic developments that could 

have an impact on the trading and issuance of municipal 

securities; and the ability to receive EMMA alerts to stay 

current on newly available information about securities.” 

Id. Jennifer A. Galloway, Chief Communications 

Officer, MSRB, Press Release, MSRB Improves Bank 

Loan Disclosure on EMMA Website (Sept. 26, 2016), 

http://msrb.org/News-and-Events/Press-Releases/2016/

MSRB-Improves-Bank-Loan-Disclosure-on-EMMAWebsite; Jennifer A. Galloway, Chief Communications 

Officer, MSRB, Press Release, MSRB Improves Bank 

Loan Disclosure on EMMA Website (Sept. 26, 2016), 

http://msrb.org/News-and-Events/Press-Releases/

2016/MSRB-Improves-Bank-Loan-Disclosure-onEMMA-Website.

54 The Office of the Investor Advocate considers a proposed 

rule or rule amendment with comment periods expiring 

between October 1, 2015 and September 30, 2016, to be 

included in its FY 2016 rulemaking review. For purposes 

of this Report, we also include as part of our FY 2016 

review the MSRB’s Notice of Filing of a Proposed Rule 

Change to MSRB Rules G-15 and G-30 to Require 

Disclosure of Mark-Ups and Mark-Downs to Retail 

Customers in Certain Principal Transactions and to 

Provide Guidance on Prevailing Market Price, which had 

a comment period ending October 4, 2016. See Proposed 

Rule, Notice of Filing of a Proposed Rule Change to 
60 | OFFICE OF THE INVESTOR ADVOCATE

MSRB Rules G-15 and G-30 to Require Disclosure of 

Mark-Ups and Mark-Downs to Retail Customers in 

Certain Principal Transactions and to Provide Guidance 

on Prevailing Market Price, Exchange Act Release No. 

78,777, 81 Fed. Reg. 62,947 (published Sept. 13, 2016).

We have also included as part of our FY 2016 review the 

MSRB’s second request for comment on draft provisions 

relating to minimum denominations, which was 

published on September 27, 2016, and had a comment 

period ending October 18, 2016. See MSRB, Regulatory 

Notice 2016-23, Second Request for Comment on Draft 

Provisions on Minimum Denominations (Sept. 27, 

2016), http://msrb.org/~/media/Files/Regulatory-Notices/

RFCs/2016-23.ashx?la=en. 

55 See Comment Letter, Rick A. Fleming, Investor 

Advocate, SEC, RE: MSRB Regulatory Notice 

2015-18, Request for Comment on Draft Amendments 

to MSRB Rule A-3 to Lengthen the Term of Board 

Member Service (Oct. 29, 2015), http://www.msrb.org/

RFC/2015-18/Flemming.pdf; Comment Letter, Rick A. 

Fleming, Investor Advocate, SEC, RE: MSRB Notice 

2015-16, RE: FINRA Notice 15-36 (Dec. 11, 2015), 

https://www.sec.gov/about/offices/investorad/commentletter-msrb-finra-investor-advocate-121115.pdf; 

Comment Letter, Rick A. Fleming, Investor Advocate, 

SEC, RE: MSRB Notice 2014-20 (Jan. 20, 2015), http://

www.msrb.org/RFC/2014-20/USSEC.pdf; Comment 

Letter, Rick A. Fleming, Investor Advocate, SEC, FINRA 

Notice 14-52 (Jan. 20, 2015), http://www.finra.org/sites/

default/files/notice_comment_file_ref/SEC.pdf.

56 Comment Letter, Rick A. Fleming, Investor Advocate, 

SEC, RE: MSRB Regulatory Notice 2015-08, Request 

for Comment on Draft Amendments and Other Issues 

Related to MSRB Rule A-3 on Membership on the 

Board (July 13, 2015), http://www.msrb.org/RFC/2015-

08/OIAD.pdf.

57 Id. at 2.

58 See MSRB, Regulatory Notice 2015-18, Request for 

Comment on Draft Amendments to MSRB Rule A-3 to 

Lengthen the Term of Board Member Service (Oct. 5, 

2015), http://www.msrb.org/~/media/Files/RegulatoryNotices/RFCs/2015-18.ashx?n=1.

59 Id.

60 Comment Letter, Rick A. Fleming, Regulatory Notice 

2015-18, supra note 55.

61 Municipal Securities Rulemaking Board; Notice of Filing 

of a Proposed Rule Change Consisting of Proposed 

Amendments to Rule A-3, on Membership on the Board, 

Exchange Act Release No. 76,999, 81 Fed. Reg. 6,088 

(published Feb. 4, 2016); Order Granting Approval 

of a Proposed Rule Change Consisting of Proposed 

Amendments to Rule A-3, on Membership on the Board, 

Exchange Act Release No. 77,390, 81 Fed. Reg. 15,582 

(Mar. 23, 2016).

62 See MSRB, Regulatory Notice 2014-20, Request for 

Comment on Draft Rule Amendments to Require 

Dealers to Provide Pricing Reference Information on 

Retail Customer Confirmations, at 1 (Nov. 17, 2014), 

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

RFCs/2014-20.ashx?n=1; FINRA, Regulatory Notice 

14-52, Pricing Disclosure in the Fixed Income Markets, 

at 3 (Nov. 17, 2014), http://www.finra.org/sites/default/

files/notice_doc_file_ref/Notice_Regulatory_14-52.pdf

[hereinafter FINRA Notice 14-52]. The Office of the 

Investor Advocate believed that retail investors would 

benefit from the disclosure of the additional pricing 

information and filed a supportive comment letter with 

both the MSRB and FINRA. See also Comment Letter, 

Rick A. Fleming, Investor Advocate, SEC, RE: MSRB 

Notice 2014-20 (Jan. 20, 2015), http://www.msrb.org/

RFC/2014-20/USSEC.pdf; Comment Letter, Rick A. 

Fleming, Investor Advocate, SEC, FINRA Notice 14-52 

(Jan. 20, 2015), http://www.finra.org/sites/default/files/

notice_comment_file_ref/SEC.pdf. 

63 See MSRB, Regulatory Notice 2015-16, Request for 

Comment on Draft Rule Amendments to Require 

Confirmation Disclosure of Mark-ups for Specified 

Principal Transactions with Retail Customers (Sept. 24, 

2015), http://www.msrb.org/~/media/Files/RegulatoryNotices/RFCs/2015-16.ashx?la=en [hereinafter MSRB 

Notice 2015-16]; see also FINRA, Regulatory Notice 

15-36, Pricing Disclosure in the Fixed Income Markets 

(Oct. 12, 2015), http://www.finra.org/industry/

all-requests-for-comments [hereinafter FINRA 

Notice 15-36].

64 MSRB Notice 2015-16, supra note 63 at 7.

65 FINRA Notice 15-36 differs from FINRA Notice 

14-52 in that it reclassifies the types of trades that 

would trigger the disclosure requirement; allows for 

alternative calculation methods for more complex 

trade scenarios; allows firms to choose whether or not 

to disclose the reference price, or disclose the reference 

price with clarifying information for situations in which 

there is a material change to the price of a security; and 

requires firms to include TRACE data on the customer 

confirmation. FINRA Notice 15-36, supra note 63 

63; FINRA Notice 14-52, supra note 62. The new 

FINRA proposal would require a firm to disclose on 

the customer confirmation the price to the customer, the 

price to the firm of the same-day trade (reference price), 

and the differential between the two if “a firm sells to a 

customer as principal and on the same day buys the same 

security as principal from another party.” FINRA Notice 

15-36, supra note 63, at 2.

66 See Comment Letter, Rick A. Fleming, Investor 

Advocate, SEC, RE: MSRB Notice 2015-16, RE: 

FINRA Notice 15-36 (Dec. 11, 2015), https://www.sec.

gov/about/offices/investorad/comment-letter-msrb-finrainvestor-advocate-121115.pdf. 
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 61

67 See id.

68 See id.

69 MSRB, Regulatory Notice 2016-07, Request for 

Comment on Draft Amendments to MSRB Rule G-30 to 

Provide Guidance on Prevailing Market Price (Feb. 18, 

2016), http://www.msrb.org/~/media/Files/RegulatoryNotices/RFCs/2016-07.ashx?n=1 [hereinafter MSRB 

Notice 2016-07].

70 Comment Letter, Rick A. Fleming, Investor Advocate,

SEC, RE: Regulatory Notice 2016-07, (Mar. 31, 2016), 

http://www.msrb.org/RFC/2016-07/Fleming.pdf.

71 Id. at 2.

72 Self-Regulatory Organizations; Financial Industry 

Regulatory Authority, Inc.; Notice of Filing of a 

Proposed Rule Change Relating to FINRA Rule 2232 

(Customer Confirmations) to Require Members to 

Disclose Additional Pricing Information on Retail 

Customer Confirmations Relating to Transactions in 

Fixed Income Securities, Exchange Act Release No. 

78,573, 81 Fed. Reg. 55,500 (published Aug. 19, 2016) 

[hereinafter FINRA Proposing Release]; Self-Regulatory 

Organizations; Municipal Securities Rulemaking 

Board; Notice of Filing of a Proposed Rule Change 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. 

78,777 (published Sept. 7, 2016), 81 Fed. Reg. 62,947 

(published Sept. 13, 2016) [hereinafter MSRB 

Proposing Release].

73 See Rick A. Fleming, Investor Advocate, SEC, 

Recommendation of the Investor Advocate, File No. 

SR-FINRA-2016-032; SR-MSRB-2016-12 (Nov. 7, 

2016), https://www.sec.gov/comments/sr-finra-2016-032/

finra2016032-10.pdf. On November 17, 2016, after 

the close of the Reporting Period, the Commission 

approved both proposals.

74 Rick A. Fleming, Investor Advocate, SEC, Speech 

at MSRB Municipal Securities Regulator Summit, 

Investor Protection in the Municipal Securities Market, 

Washington, D.C. (Aug. 25, 2016), https://www.sec.

gov/news/speech/investor-protection-in-the-municipalsecurities-markets.html. 

75 Pub. L. No. 112-106, 126 Stat. 306 (2012).

76 Pub. L. No. 114-94, 129 Stat. 1312 (2015).

77 Pub. L. No. 114-94, § 72002, 129 Stat. 1312 (2015).

78 See id.

79 Business and Financial Disclosure Required by 

Regulation S-K, Exchange Act Release No. 77,599, 81 

Fed. Reg. 23,915 (published Apr. 22, 2016).

80 See Pub. L. No. 114-94, § 71003 and § 84001, 129 Stat. 

1312 (2015).

81 Simplification of Disclosure Requirements for Emerging 

Growth Companies and Forward Incorporation 

by Reference on Form S-1 for Smaller Reporting 

Companies, Securities Act Release No. 10,003, 81 Fed. 

Reg. 2,743 (published Jan. 19, 2016).

82 Changes to Exchange Act Registration Requirements 

to Implement Title V and Title VI of the JOBS Act, 

Securities Act Release No. 10,075, Exchange Act 

Release No. 77,757, 81 Fed. Reg. 28,689 (adopted 

May 10, 2016).

83 See id.

84 See Pub. L. No. 114-94, § 71001, 129 Stat. 1312 (2015).

85 Form 10-K Summary, Exchange Act Release No. 77,969,

81 Fed. Reg. 37,132 (published June 9, 2016).

86 Modernization of Property Disclosures for Mining 

Registrants, Securities Act Release No. 10,098, Exchange 

Act Release No. 78,086, 81 Fed. Reg. 41,651 (proposed 

June 27, 2016).

87 Amendments to Smaller Reporting Company Definition, 

Securities Act Release No. 10,107, Exchange Act Release 

No. 78,168, 81 Fed. Reg. 43,130 (proposed July 1, 

2016).

88 Disclosure Update and Simplification, Securities Act 

Release No. 10,101, Exchange Act Release No. 78,310, 

Investment Company Act Release No. 32,175, 81 Fed. 

Reg. 51,607 (proposed Aug. 4, 2016).

89 Request for Comment on Subpart 400 of Regulation 

S-K Disclosure Requirements Relating to Management, 

Certain Security Holders and Corporate Governance 

Matters, Securities Act Release No. 10,198, Exchange 

Act Release No. 78,687, 81 Fed. Reg. 59,927 (published 

Aug. 31, 2016).

90 Exhibit Hyperlinks and HTML Format, Securities Act 

Release No. 10,201, Exchange Act Release No. 78,737, 

81 Fed. Reg. 62,689 (proposed Sept. 12, 2016).

91 Pub. L. No. 114-94, § 72003(c), 129 Stat. 1312 (2015). 

92 Id. at § 72003(c).

93 Id. at § 72003(d).

94 See Rick A. Fleming, Investor Advocate, SEC, Improving 

Disclosure with Smart Data (Oct. 24, 2016), https://

www.sec.gov/news/speech/improving-disclosure-withsmart-data.html. 

95 Mary Jo White, Chair, SEC, Statement at an Open 

Meeting on Regulation S-K Concept Release (Apr. 13, 

2016), https://www.sec.gov/news/statement/whitestatement-1-041316.html.

96 See Preston v. Allison, 650 A.2d 646, 649 (Del. 1994); 

see also Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651, 

659 (Del. Ch. 1988) (“The shareholder franchise is the 

ideological underpinning upon which the legitimacy of 

directorial power rests.”).
62 | OFFICE OF THE INVESTOR ADVOCATE

97 15 U.S.C. § 78n(a).

98 Business Roundtable v. SEC, 647 F.3d 1144 

(D.C. Cir. 2011).

99 N.Y.C. Comptroller Scott M. Stringer, Overview of 

Boardroom Accountability Project, http://comptroller.

nyc.gov/services/financial-matters/boardroomaccountability-project/overview/ (last visited 

Oct. 13, 2016).

100 See Report on Objectives, Fiscal Year 2016, supra note 3, 

at 21-22.

101 See Staff Legal Bulletin No. 14H (CF) (Oct. 22, 2015), 

https://www.sec.gov/interps/legal/cfslb14h.htm. 

102 Id. at Section B.3.

103 See id.

104 Michael Greene, Proxy Access Remains in Spotlight for 

2017 Season, Bloomberg BNA (Sept. 19, 2016), http://

www.bna.com/proxy-access-remains-n57982077182/.

105 Vipal Monga, The Big Number, Wall St. J. (Oct. 10, 

2016), (citing a survey by the law firm Shearman & 

Sterling LLP), http://www.wsj.com/articles/the-bignumber-1476140737. 

106 See Michael Greene, Proxy Access Remains in Spotlight for 2017 Season, Bloomberg BNA (Sept. 19, 

2016), http://www.bna.com/proxy-access-remainsn57982077182/.

107 Id.

108 See Universal Proxy, Exchange Act Release No. 79,164, 

Investment Company Act Release No. 32,339, 81 Fed. 

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

109 See Rick A. Fleming, Investor Advocate, SEC, 

Recommendation of the Investor Advocate, File No. 

SR-NYSE-2015-02 (Oct. 16, 2015), http://www.

sec.gov/about/offices/investorad/comment-letter-secinvestor-advocate-101615.pdf; see also Order Instituting 

Proceedings to Determine Whether to Disapprove 

Proposed Rule Change Amending Sections 312.03(b) 

and 312.04 of the NYSE Listed Company Manual to 

Exempt Early Stage Companies from having to Obtain 

Shareholder Approval Before Issuing Shares for Cash to 

Related Parties, Affiliates of Related Parties or Entities 

in Which a Related Party Has a Substantial Interest, 

Exchange Act Release No. 75,599, 80 Fed. Reg. 47,978 

(published Aug. 10, 2015). 

110 See Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Amendment Nos. 1 and 

2 and Order Granting Accelerated Approval of Proposed 

Rule Change, as Modified by Amendment Nos. 1 and 

2 Thereto, Amending Sections 312.03(b) and 312.04 

of the NYSE Listed Company Manual to Exempt Early 

Stage Companies From Having to Obtain Shareholder 

Approval Before Issuing Shares for Cash to Related Parties, Affiliates of Related Parties or Entities in Which a 

Related Party Has a Substantial Interest, Exchange 

Act Release No. 76,814, 81 Fed. Reg. 820 (published 

Jan. 7, 2016). 

111 See Nasdaq, Solicitation of Comments by the NASDAQ

Listing and Hearing Review Council about Shareholder 

Approval Rules (Nov. 18, 2015), https://listingcenter.

nasdaq.com/assets/Shareholder%20Approval%20

Comment%20Solicitation.pdf. 

112 See SEC Investor Advisory Committee Meeting 

(Jan. 21, 2016), https://www.sec.gov/video/webcastarchive-player.shtml?document_id=investor-advisorycommittee-012116 (03:29:30-04:27.46).

113 See Letter from Rick A. Fleming, Investor Advocate, 

SEC, to Stanley Higgins, Senior Director, Listing 

Qualifications, Nasdaq (Feb. 12, 2016), https://www.sec.

gov//about/offices/investorad/comment-letter-investoradvocate-nasdaq-021216.pdf.

114 See Rick A. Fleming, Investor Advocate, SEC, Speech 

at the SEC Speaks in 2016: The Falling Leaves of the 

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

news/speech/falling-leaves-buttonwood-tree.html. 

115 See Self-Regulatory Organizations; New York Stock 

Exchange LLC; Notice of Filing of Proposed Rule 

Change Adopting Initial and Continued Listing 

Standards for the Listing of Equity Investment Tracking 

Stocks and Adopting Listing Fees Specific to Equity 

Investment Tracking Stocks, Exchange Act Release No. 

77,674, 81 Fed. Reg. 24,919 (published Apr. 27, 2016).

116 See, e.g., Jesse Drucker, Sprint Highlights the Pitfalls Of 

Tracking-Stock Structure, WAll St. J. (Mar 7, 2003) 

http://www.wsj.com/articles/SB104699971768830900. 

117 See Self-Regulatory Organizations; New York Stock 

Exchange LLC; Order Granting Approval of a Proposed 

Rule Change, as Modified by Amendment Nos. 5 and 6, 

to Adopt Initial and Continued Listing Standards for the 

Listing of Equity Investment Tracking Stocks and Adopt 

Listing Fees Specific to Equity Investment Tracking 

Stocks, Exchange Act Release No. 78,153, 81 Fed. Reg. 

42,762 (published June 30, 2016). 

118 See id.

119 Rick A. Fleming, Investor Advocate, SEC, Comment 

Letter on PCAOB Rulemaking Docket Matter No. 

034, The Auditor’s Report on an Audit of Financial 

Statements When the Auditor Expresses an Unqualified 

Opinion, (Aug. 15, 2016), https://www.sec.gov/about/

offices/investorad/comment-investor-advocate-pcaobauditor-reports-8-15-2016.pdf.

120 Schnurr went on to explain what IFCR is: “In simple 

terms, a company’s ICFR consists of the controls that 

are designed to provide reasonable assurance that the 

company’s financial statements are reliable and prepared 

in accordance with GAAP. While controls cannot replace 

the need for judgment or eliminate the variations in 

reporting inherent in situations in which a range of 

acceptable judgments is possible, well-designed controls 
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 63

support the process by which those accounting judgments are made and the resulting quality of the financial 

reporting.” [Footnotes omitted.] James V. Schnurr, Chief 

Accountant, Office of the Chief Accountant, Remarks 

Before the 2015 AICPA National Conference on Current SEC and PCAOB Developments, (Dec. 9, 2015), 

https://www.sec.gov/news/speech/schnurr-remarks-aicpa2015-conference-sec-pcaob-developments.html.

121 “Management’s ability to successfully transition to new 

accounting standards will depend, to a large degree, on 

the effective design and operation of ICFR,” he noted.

Brian T. Croteau, Deputy Chief Accountant, Office of 

the Chief Accountant, Remarks before the 2015 AICPA 

National Conference on Current SEC and PCAOB 

Developments, (Dec. 9, 2015), https://www.sec.gov/news/

speech/croteau-2015-aicpa.html.

122 Rick A. Fleming, Investor Advocate, SEC, Letter on 

H.R. 4139, Fostering Innovation Act of 2015, (May 23, 

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

letter-from-sec-investor-advocate-hr-4139.pdf.

123 FASB, Exposure Draft: Proposed Amendments 

to Statement of Financial Accounting Concepts, 

Conceptual Framework for Financial Reporting—

Chapter 3, Qualitative Characteristics of Useful 

Financial Information, http://www.fasb.org/jsp/FASB/

Document_C/DocumentPage?cid=1176166402450&acc

eptedDisclaimer=true.

124 For a FASB member’s explanation of how the materiality 

proposals fit in with FASB’s overall Disclosure 

Framework project, see Marc Siegel, For The Investor: 

Disclosure Effectiveness—How Materiality Fits In, 

FASB, 2016 Q1, http://www.fasb.org/cs/ContentServe

r?c=Page&pagename=FASB%2FPage%2FSectionPag

e&cid=1176167771326.

125 FASB, Exposure Draft: Proposed Accounting Standards 

Update (ASU), Notes to Financial Statements (Topic 

235): Assessing Whether Disclosures Are Material, http://

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

d=1176166402325&acceptedDisclaimer=true.

126 See, e.g., FASB in Focus: FASB Disclosure Framework 

Exposure Drafts on Materiality, September 2015, http://

www.fasb.org/cs/ContentServer?c=Document_C&pa

gename=FASB%2FDocument_C%2FDocumentPag

e&cid=1176166402203.

127 SEC, Investor Advisory Committee, Letter to Technical 

Director, FASB (Jan. 21, 2016), http://www.sec.gov/

spotlight/investor-advisory-committee-2012/iac-letterfasb-materiality-012116.pdf. See also, comment letters 

submitted to FASB by the California Public Employees’ 

Retirement System (“CalPERS”) (Dec. 8, 2015); the CFA 

Institute (Jan. 21, 2016); the Council of Institutional 

Investors (CII), (Dec. 3, 2015); and Jack Ciesielski, R.G. 

Associates, Inc. (Dec. 7, 2015), http://www.fasb.org/jsp/

FASB/CommentLetter_C/CommentLetterPage&cid=12

18220137090&project_id=2015-310. For a summary 

of comment letters submitted to FASB, see FASB, Board 

Meeting Handout: Disclosure Framework, (Mar. 2, 

2016), http://www.fasb.org/jsp/FASB/Document_C/

DocumentPage&cid=1176167952679.

128 Staff of the U.S. Securities and Exchange Commission, 

Study on Investment Advisers and Broker-Dealers 

as Required by Section 913 of the Dodd-Frank Wall 

Street Reform and Consumer Protection Act, at i 

(Jan. 21, 2011).

129 Id. 

130 Id. 

131 Id. 

132 15 U.S.C. § 80b. Unless otherwise noted, when we refer 

to the Advisers Act, or any paragraph of the Advisers 

Act, we are referring to 15 U.S.C. § 80b of the United 

States Code, at which the Advisers Act is codified. 

133 Staff of the U.S. Securities and Exchange Commission, 

supra note 128 at iii.

134 Id. at 22.

135 Id. (quoting Concept Release on the U.S. Proxy System, 

Exchange Act Release No. 62,495, Investment Advisers 

Act Release No. 3,052, Investment Company Act 

Release No. 29,340, 75 Fed. Reg. 42,982 (published 

July 22, 2010)). 

136 Staff of the U.S. Securities and Exchange Commission, 

supra note 128 at iii.

137 Id.

138 Id. 

139 Id.

140 See Report on Objectives, Fiscal Year 2016, supra note 3, 

at 13.

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

1376 (2010).

142 Staff of the U.S. Securities and Exchange Commission, 

supra note 128.

143 See Duties of Brokers, Dealers, and Investment Advisers, 

Exchange Act Release No. 69,013, Investment Advisers 

Act Release No. 3,558, 78 Fed. Reg. 14,848 (published 

Mar. 7, 2013).

144 See id.

145 See Definition of the Term “Fiduciary”; Conflict of 

Interest Rule—Retirement Investment Advice, 81 Fed. 

Reg. 20,946 (adopted Apr. 8, 2016).

146 Id.

147 Id.

148 See Mark Schoeff Jr., SEC Chairwoman Mary Jo White 

Says Agency Mulling Fiduciary Duty, iNveStmeNtNeWS

(Sept. 12, 2016), http://www.investmentnews.com/

article/20160912/FREE/160919991/sec-chairwomanmary-jo-white-says-agency-mulling-fiduciary-duty.
64 | OFFICE OF THE INVESTOR ADVOCATE

149 See id. Chair White’s reiteration of support for a fiduciary 

duty rule can be traced back to her remarks on March 

17, 2015, when she called for the implementation of 

a uniform fiduciary standard for broker-dealers and 

investment advisers under Section 913 of Dodd-Frank.

See, e.g., Justin Baer & Andrew Ackerman, SEC Head 

Backs Fiduciary Standards for Brokers, Advisers, Wall

St. J. (Mar. 17, 2015), http://www.wsj.com/articles/

sec-head-seeks-uniformity-in-fiduciary-duties-amongbrokers-advisers-1426607955; Michael J. de la Merced, 

S.E.C. Chief Voices Support for Higher Advice Standard 

for Brokers, N.Y. Times: DealBook (Mar. 17, 2015), 

http://www.nytimes.com/2015/03/18/business/dealbook/

sec-chief-voices-support-for-higher-advice-standard-forbrokers.html?_r=0.

150 Justin Baer & Andrew Ackerman, SEC Head Backs 

Fiduciary Standards for Brokers, Advisers, Wall St. J. 

(Mar. 17, 2015), http://www.wsj.com/articles/sec-headseeks-uniformity-in-fiduciary-duties-among-brokersadvisers-1426607955; Michael J. de la Merced, S.E.C. 

Chief Voices Support for Higher Advice Standard for 

Brokers, N.Y. Times: DealBook (Mar. 17, 2015), http://

www.nytimes.com/2015/03/18/business/dealbook/

sec-chief-voices-support-for-higher-advice-standard-forbrokers.html?_r=0.

151 See Baer & Ackerman, supra note 150.

152 U.S. Census Bureau, Projections of the Population by Sex 

and Selected Age Groups for the United States: 2015 to 

2060 (December 2014).

153 Id.

154 See Justin McCarthy, Americans’ Financial Worries Edge 

Up in 2016, Gallup (Apr. 28, 2016), http://www.gallup.

com/poll/191174/americans-financial-worries-edge-2016.

aspx?version=.

155 See id.

156 See Lydia Saad, Three in 10 U.S. Workers Foresee 

Working Past Retirement Age, Gallup (May 13, 2016), 

http://www.gallup.com/poll/191477/three-workersforesee-working-past-retirement-ags-as.aspx?version=.

157 See U.S. Gov’t Accountability Office, Retirement 

Security—Most Households Approaching Retirement 

Have Low Savings (May 12, 2015) at 7.

158 See id.

159 Keith Miller et al., The Reality of the Retirement Crisis, 

Center for American Progress (Jan. 26, 2015) at 1.

160 See Joshua Gotbaum, Losing Ground: Little Reason to 

Celebrate 10th Anniversary of the Pension Protection 

Act, Brookings (Aug. 26, 2016), https://www.brookings.

edu/opinions/losing-ground-little-reason-to-celebrate10th-anniversary-of-the-pension-protection-act/.

161 Bipartisan Policy Ctr., Securing Our Financial Future: 

Report of the Commission on Retirement Security and

Personal Savings (June 2016), http://cdn.bipartisanpolicy.

org/wp-content/uploads/2016/06/BPC-RetirementSecurity-Report.pdf.

162 Alicia H. Munnell, Falling Short: The Coming 

Retirement Crisis and What to Do about It, (Ctr. for Ret. 

Research at Boston College Issue in Brief No.15-7, Apr. 

2015), http://crr.bc.edu/wp-content/uploads/2015/04/

IB_15-7_508.pdf.

163 Teresa Ghilarducci and Hamilton “Tony” James, A 

Comprehensive Plan to Confront the Retirement Savings 

Crisis, The New School Retirement Equity Lab (2016).

164 See Office of the Investor Advocate, SEC, Perspectives 

on Retirement Readiness in the United States: A White 

Paper (Nov. 2016), available at https://www.sec.gov/

advocate/staff-papers/white-papers/retirement-readinesswhite-paper.pdf. 

165 Rick A. Fleming, Investor Advocate, SEC, Speech at 

NASAA Corporation Finance Training, Moving Forward 

with the Commission’s Disclosure Effectiveness Initiative, 

Houston, TX (Nov. 19, 2016), https://www.sec.gov/

news/speech/moving-forward-with-the-disclosureeffectiveness-initiative.html.

166 Exchange Act § 4(g)(6)(B)(ii)(V), 15 U.S.C. § 78d(g)(6)

(B)(ii)(V).

167 NASAA, NASAA Enforcement Report: 2016 Report 

on 2015 Data (Sept. 2016), http://nasaa.cdn.

s3.amazonaws.com/wp-content/uploads/2016/09/2016-

Enforcement-Report-Based-on-2015-Data_online.pdf; 

see also NASAA, Top Investor Threats, http://www.

nasaa.org/3752/top-investor-threats/ (last visited 

Sept, 19, 2016). 

168 Letter from MSRB to Rick Fleming, Investor Advocate, 

SEC (Nov. 3, 2016), http://www.msrb.org/msrb1/

pdfs/MSRB-Response-to%20Investor-AdvocateNovember-2016.pdf.

169 This list of problematic products identified by the SEC is 

based on staff analysis of the alerts and bulletins issued 

by the SEC’s Office of Investor Education and Advocacy 

and the SEC’s Office of Compliance Inspections and 

Examinations during FY 2016.

170 See NASAA Enforcement Report, supra note 167; see 

also Top Investor Threats, supra note 167.

171 This list of problematic products is based on discussion 

with FINRA staff and our analysis of the alerts and 

bulletins issued by FINRA for investors during FY 2016. 

172 Adam Janofsky & Angus Loten, Startups Offer Unusual 

Reward for Investing, Wall St. J. (Apr. 1, 2015), http://

www.wsj.com/articles/startups-offer-unusual-reward-forinvesting-1427944095.

173 Id.

174 See Joe Green & John Coyle, Is the SAFE Not So 

Safe for Investment Crowdfunding?, Crowdfund

Insider (Sept. 22, 2016), http://www.crowdfundinsider.

com/2016/09/90470-safe-not-safe-investmentcrowdfunding/.

175 Id.
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 65

176 See Stephanie L. Zeppa & Andrew S. Kreider, SAFEs 

and KISSes Poised to Be the Next Generation of Startup 

Financing, The Nat’l Law Review (May 6, 2015), http://

www.natlawreview.com/article/safes-and-kisses-poisedto-be-next-generation-startup-financing.

177 15 U.S.C. § 80a-2(a)(48); see 1 Clifford E. Kirsch, 

Mutual Fund and Exchange Traded Funds, § 33:4 (3d 

ed. 2014) (“A business development company is defined 

in section 2(a)(48) of the Investment Company Act as 

any closed-end company which is organized under the 

laws of, and has its principal place of business in, any 

state, is operated for the purpose of making investments 

in certain securities and generally makes available 

significant managerial assistance with respect to the 

issuers of such securities, and has elected to be regulated 

as a business development company in accordance with 

the requirements of sections 55 to 65 of the Investment 

Company Act.”); see also Richard G. Tashjian, The 

Small Business Investment Incentive Act of 1980 and 

Venture Capital Financing, 9 Fordham Urb. L.J. 865, 

883 (1981) (“A business development company is 

defined in section 2(a)(48) as any closed-end domestic 

company that is operated for the purpose of investing 

in securities of the companies indicated in section 55 

and that makes available to these companies significant 

managerial assistance.”). 

178 H. R. Rep. No. 96-1341 at 20-22 (1980), reprinted 

in 1980 U.S.C.C.A.N. 4800, 4804 (recognizing that 

BDCs exhibit substantial differences from investment 

companies and therefore stating that the Small Business 

Investment Incentive Act seeks to remove burdens on 

venture capital activities that might create unnecessary 

disincentives to the legitimate provision of capital to 

small businesses); Kirsch, supra note 177 at § 1A:2.2. 

179 15 U.S.C. § 80a-54(a); see H. R. Rep. No. 96-1341, 

supra note 178 at 23 (“The restrictions are designed 

to assure that companies electing special treatment as 

[BDCs] are in fact those that [Small Business Investment 

Incentive Act] is intended to aid – companies providing 

capital and assistance to small, developing or financially 

troubled businesses that are seeking to expand, not 

passive investors in large, well-established businesses.”); 

see also Tashjian, supra note 177 at 930 (“The 1980 

Amendments to the [Investment Advisers Act of 1940] 

distinguish between an investment adviser to a business 

development company that has elected to be regulated 

under section 54 of the Amended Act and an investment 

adviser to a nonregulated business development 

company.”); SEC, Press Release, SEC Adopts New Rules 

for Business Development Companies and Reproposes 

New Category of Eligible Portfolio Company, 

2006-181 (Oct. 26, 2006), https://www.sec.gov/news/

press/2006/2006-181.htm. 

180 See 15 U.S.C. § 80a-2(a)(46) (statutory definition of 

eligible portfolio company); Tashjian, supra note 177 at 

884-85.

181 15 U.S.C. § 80a-2(a)(48).

182 2 Robert J. Haft, Arthur F. Haft & Michele Haft Hudson, Venture Cap. & Bus. Fin., § 5:3 (Aug. 2016). 

183 Id.

184 See id.

185 Christine Idzelis & Craig Torres, Banks Are Booming 

in Wall Street’s Shadow, Bloomberg (May 22, 2015), 

http://www.bloomberg.com/news/articles/2015-05-22/

wall-street-flouts-fed-standards-to-fund-high-risk-loans; 

Randall Smith, Obscure Corner of Wall St. Draws 

Skepticism From Investors, N.Y. Times: DealBook (Dec. 

24, 2015), http://www.nytimes.com/2015/12/25/business/

dealbook/obscure-corner-of-wall-st-draws-skepticismfrom-investors.html?_r=0. 

186 See, e.g., Haft, supra note 182 (Unlisted BDCs are 

required to follow the same regulatory structure as 

listed BDCs). 

187 See, e.g., id. (stating that historically, BDCs are listed on 

a national stock exchange but that recently, some BDCs 

have declined listing on an exchange).

188 See, e.g., Kirsten Grind & Jean Eaglesham, These 

High-Fee, Unlisted, Junk-Based Funds Aren’t Working 

Out, Wall St. J. (Mar. 19, 2016), http://www.wsj.com/

articles/these-high-fee-unlisted-junk-based-funds-arentworking-out-1458379803 (noting that non-traded 

BDCs in particular were part of a fast-growing class of 

investments sold to individual investors seeking steady 

dividends, yields as high as 8 percent and a haven 

from volatile markets) [hereinafter, Grind, High-Fee, 

Unlisted]; Amey Stone, BDCs to Rise With Interest 

Rates, Barron’s (Oct. 3, 2016), http://www.barrons.

com/articles/high-yielding-bdcs-could-rise-with-interestrates-1475297891 (stating that BDC yields average 

about 9 percent and that many are trading at discounts 

to book value); Gillian Tan, A Yield Play That Could 

Bite Back, Wall St. J. (Feb. 21, 2014), http://www.wsj.

com/articles/SB100014240527023036364045793934

53645776782 (observing that investors might consider 

tapping BDCs “as a small part of a broader allocation 

to high-yield, or noninvestment-grade, debt” and noting 

that in 2014 average annual BDC yields was 9.1 percent 

according to Wells Fargo Securities). 

189 See, e.g., Michael Kelly, Investors Thinking About 

Retirement Should Understand BDCs, InvestmentNews: 

Outside/In (Sept. 1, 2015), http://www.investmentnews.

com/article/20150901/BLOG09/150909994/investorsthinking-about-retirement-should-understand-bdcs.

190 Mark Schoeff Jr., Finra Launches Exam Sweep of 

Business Development Companies, InvestmentNews

(Aug. 4, 2016), http://www.investmentnews.com/

article/20160804/FREE/160809952/finra-launchesexam-sweep-of-business-development-companies.

191 Kirsten Grind & Jean Eaglesham, A $2.5 Billion 

Business-Development-Corporation Fund Hits 
66 | OFFICE OF THE INVESTOR ADVOCATE

Redemption Limit, Wall ST. J. (Apr. 10, 2016), 

http://www.wsj.com/articles/a-2-5-billion-bdc-haltsredemptions-after-limit-reached-1460280602 [hereinafter 

Grind, Fund Hits Redemption Limit]; Bruce Kelly, 

Illiquid BDCs demand scrutiny, INVESTMENTNEWS 

(Apr. 21, 2013, 12:01 AM), http://www.investmentnews.

com/article/20130421/REG/304219999/illiquidbdcs-demand-scrutiny (analysts indicate nontraded 

BDCs’ merits compared with traded BDCs include 

less fluctuation in the BDC’s value and that ability to 

raise capital in a steady manner) [hereinafter Kelly, 

Illiquid BDCs].

192 See Kelly, Illiquid BDCs, supra note 191 (discussing, in 

part, that BDCs yields are attractive due to exposure to 

high credit risks that are amplified by leverage); Tan, 

supra note 188 (noting that potential defaults pose a risk 

to BDCs and that BDCs are less diversified than banks 

and more exposed to market downturns). 

193 Tan, supra note 188 (observing that investors might 

consider tapping BDCs “as a small part of a broader 

allocation to high-yield, or noninvestment-grade, debt” 

and noting that in 2014 average annual BDC yields was 

9.1 percent according to Wells Fargo Securities).

194 Kelly, Illiquid BDCs, supra note 191 (discussing risks 

associated with BDCs such as potential default rates 

on the loans, risk of defaults and whether the loans 

would be repaid to the lender in cash or by issuing more 

securities); Smith, supra note 185 (observing that the 

BDC category has grown tenfold over the last decade, 

to $64 billion in assets partly because BDCs offer higher 

yields in exchange for the high-risk nature of their assets); 

John Waski, Column: Business Development Companies -

High Yield, High Risk, ReuTeRs (May 17, 2013 

8:07AM), http://www.reuters.com/article/us-columnwasik-bdcs-idUSBRE94G0CL20130517. 

195 FINRA, 2013 Regulatory and Examination Priorities 

Letter (Jan. 11, 2013), http://www.finra.org/

industry/2013-exam-priorities-letter. 

196 See, e.g., Grind, High-Fee, Unlisted, supra note 188 

(observing that the number of unusual risks, including 

loans to small and medium-size companies with less than 

stellar credit, less transparency, upfront fees of at least 10 

percent and limited withdrawal requests, has not deterred 

investors seeking high yields and low interest rates). 

197 Tim Dulaney, Tim Husson & Craig McCann, The Priority Senior Secured Income Fund, 20 piaba b.J. 191-192 

(2013); see also, Grind, Fund Hits Redemption Limit, 

supra note 191 (discussing, among other things, the 

illiquidity of nontraded business development companies 

and how typically investors are only allowed to cash 

out every three months); Grind, High-Fee, Unlisted, 

supra note 188 (discussing, in part, that regulators are 

concerned about nontraded BDCs that are sold using 

many of the same networks of brokerage firms and that 

charge the same high upfront commissions as nontraded

real-estate investment trusts); Kelly, Illiquid BDCs, supra 

note 191 (stating that illiquid or non-traded BDCs have 

high expenses that could limit investor returns).

198 Schoeff, supra note 190 (stating that given the complexity 

and high-risk nature of the product, there is concern 

retail customer may not fully understand the risks and 

potential impact BDCs may have on their portfolios). 

199 FINRA, 2016 Regulatory and Examination 

Priorities Letter, (Jan. 5, 2016), http://www.finra.org/

industry/2016-regulatory-and-examinationpriorities-letter.

200 Waski, supra note 194. 

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

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

203 Some of our comment letters respond to Concept

Releases and set forth our views on certain matters, but 

a specific call for action may be premature. Comment 

letters of this nature are not included in this inventory.

See, e.g., Rick A. Fleming, Investor Advocate, SEC, 

Comment Letter RE: Solicitation of Comments by the 

NASDAQ Listing and Hearing Review Council about 

Shareholder Approval Rules, (Feb. 12, 2016). Moreover, 

we are required to provide an inventory outlining 

actions of the SEC or SROs. Letters to Congress or 

other organizations such as NASAA are not included in 

this inventory, but are available at https://www.sec.gov/

advocate/investor-advocate-comment-letters.html.

204 See supra note 109 and accompanying text.

205 See supra note 60 and accompanying text.

206 See supra note 66 and accompanying text.

207 See supra note 21 and accompanying text.

208 See supra note 70 and accompanying text.

209 See supra note 119 and accompanying text.

210 See supra note 14 and accompanying text.

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

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

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

refer to the Ombudsman, or to the Ombudsman and 

Office of the Investor Advocate staff directly supporting 

the ombudsman function.

214 The Ombudsman Matter Management System

(“OMMS”) is an electronic platform for collecting, 

recording, tracking, and analyzing matters and contacts.

Persons will have the option of completing a web form 

—the OMMS Form—to submit their inquiries to the 

Ombudsman. A detailed discussion of OMMS begins on 

page 42 of this Report.

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

Activities, Fiscal Year 2015, at 24 (Dec. 23, 2015) 

[hereinafter Report on Activities, Fiscal Year 2015], 

https://www.sec.gov/advocate/reportspubs/annualreports/sec-investor-advocate-report-on-activities2015.pdf. 

216 Exchange Act § 4(g)(8)(B)(i), 15 U.S.C. § 78d(g)(8)(B)(i).
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 67

217 Report on Objectives for Fiscal Year 2016, Report 

on Activities for Fiscal Year 2015, and the Report 

on Objectives for Fiscal Year 2017. See Report on 

Objectives, Fiscal Year 2016, supra note 3; Report on 

Activities, Fiscal Year 2015, supra note 215; Report on 

Objectives, Fiscal Year 2017, supra note 4.

218 See Report on Objectives, Fiscal Year 2017, supra note 

4, at 31.

219 See FINRA, Final Rep. and Recommendations of

the FINRA Disp. Resol. Task Force (Dec. 16, 2015) 

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

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

220 Id. at 55.

221 See Final Report, supra note 219, at 21.

222 See FINRA Rule 12800(a), (b).

223 FINRA Rule 12800(c).

224 See FINRA Rule 12904(g) and FINRA Rule 12800(c).

225 FINRA Rule 12904(g).

226 FINRA, Regulatory Notice 09-16, Explained Arbitration 

Decisions (Mar. 2009), https://www.finra.org/sites/

default/files/NoticeDocument/p118141.pdf.

227 See, e.g., Comment Letter, Barbara Black, Jill I. Gross 

& Deborah Summers, RE: Release No. 34-58862, File 

No. SR-FINRA-2008-051, Notice of Filing of Proposed 

Rule Change Relating to Amendments to the Codes 

of Arbitration Procedure to Require Arbitrators to 

Provide an Explained Decision upon the Joint Request 

of the Parties (Nov. 20, 2008), at 5, http://www.sec.gov/

comments/sr-finra-2008-051/finra2008051-1.pdf.

228 Seth E. Lipner, Ideas Whose Time Has Come: The 

Single Arbitrator and Reasoned Awards, in Securities

Arbitration 2000 (David E. Robbins ed., Practising Law 

Institute, 2000).

229 Report on Objectives, Fiscal Year 2017, supra note 4, 

at 33-34.

230 Royal Alliance Associates v. Liebhaber, 206 Cal. Rptr. 

3d 805, 808 (Cal. Ct. App. 2016).

231 Id. When the investor filed the claim, FINRA 

documented the complaint in the CRD records of the 

firm and adviser. Certain information from CRD records 

is also reflected in BrokerCheck.

232 Susan Antilla, A Murky Process Yields Cleaner 

Professional Records for Stockbrokers, N.Y. Times: 

DealBook (Sept. 25, 2014, 8:40 PM), http://dealbook.

nytimes.com/2014/09/25/a-murky-process-yields-cleanerprofessional-records-for-stockbrokers.

233 Id.; see also, FINRA, Understanding the Arbitration and 

Expungement Process (May 28, 2015), at 9, http://www.

finra.org/sites/default/files/2015_AC_Understanding_the_

Arbitration_and_Expungement_Process.pdf.

234 Arbitrators should: (1) allow the investor and their 

counsel to appear at the expungement hearing; (2) allow 

the investor to testify at the expungement hearing; (3) 

allow a pro se investor, or counsel to an investor, to 

introduce documents and evidence at the expungement 

hearing; (4) allow a pro se investor, or counsel to an 

investor, to cross-examine the broker and other witnesses 

called by the party seeking expungement; and (5) allow 

a pro se investor, or counsel to an investor, to present 

opening and closing arguments, if the panel permits 

any party to make these arguments. FINRA, Notice 

to Arbitrators and Parties on Expanded Expungement 

Guidance (last update Sept. 2015) [hereinafter Expanded 

Expungement Guidance], https://www.finra.org/

arbitration-and-mediation/notice-arbitrators-and-partiesexpanded-expungement-guidance. FINRA also instructs 

arbitrators to affirmatively inform retail investors of 

expungement hearings, and allow retail investors to 

fully participate in those hearings, when an associated 

person (broker) files an arbitration claim against a firm 

for the purpose of seeking expungement without naming 

the customer in the underlying dispute as a respondent.

FINRA clarifies that “without this directive from the 

arbitrators, the customer(s) may not even be aware that 

an expungement claim is pending regarding their prior 

dispute.” Id.

235 Liebhaber, 206 Cal. Rptr. 3d at 812.

236 Id. at 812-13.

237 See id. at 814.

238 BrokerCheck, a free research tool available on FINRA’s 

website at http://brokercheck.finra.org/, provides 

information about brokerage firms, brokers, investment 

adviser firms, advisers, and formerly registered brokers, 

including information about employment histories, 

certifications, licenses, regulatory actions, violations,

and complaints.

239 Liebhaber, 206 Cal. Rptr. 3d at 814.

240 Id.

241 Id. at 819.

242 Under FINRA Rule 2080(b), FINRA is the only party 

who is required to be listed as a respondent in a judicial 

petition from a court for expungement relief. If a broker 

or firm seeks a waiver from FINRA to list FINRA as a 

party to the judicial petition for expungement, FINRA 

shares the waiver request with the relevant state(s) the 

broker or firm are registered. See FINRA, FINRA Rule 

2080 Frequently Asked Questions, http://www.finra.

org/industry/crd/rule-2080-frequently-asked-questions

(question nos. 7-8).

243 See Expanded Expungement Guidance, supra note 234.

244 Notice of Filing of a Proposed Rule Change Amending 

the Code of Arbitration Procedure, Exchange Act 

Release No. 78,549, 81 Fed. Reg. 54,858 (published 

Aug. 17, 2016) [hereinafter Party Portal Proposal]; see 

also, Response from Margo Hassan, Associate Chief 

Couns., FINRA, to Brent J. Fields, Sec’y, SEC (Oct. 

28, 2016) [hereinafter FINRA Response], RE: File No. 

SR-FINRA-2016-029, http://www.finra.org/sites/default/

files/rule_filing_file/SR-FINRA-2016-029-response-
68 | OFFICE OF THE INVESTOR ADVOCATE

to-comments.pdf. On November 14, 2016, the SEC 

approved the Party Portal rule. Order Approving Rule 

Change Amending the Code of Arbitration Procedure, 

Exchange Act Release No. 79,296, 81 Fed. Reg. 81,844 

(Nov. 18, 2016).

245 See Letter from Hugh Berkson, Pres., PIABA, to Brent 

Fields, Sec’y, SEC (Sept. 7, 2016), RE: SR FINRA 2016 

029, https://www.sec.gov/comments/sr-finra-2016-029/

finra2016029-5.pdf; see Letter from Michael F. Williford, 

Student Intern, and Nicole Iannarone, Assistant Clinical 

Professor, Geor. St. U. C. of Law, to Margo Hassan, 

Associate Chief Couns., FINRA (Sept. 7, 2016), RE: 

SR-FINRA-2016-029, https://www.sec.gov/comments/

sr-finra-2016-029/finra2016029-4.pdf.

246 Party Portal Proposal, supra note 244, at 54,859.

247 FINRA Response, supra note 244, at 3.

248 FINRA explains, “[t]he Party Portal user enters the [bank 

routing and account numbers] that appear on a personal 

check into the Party Portal. . . . A party can provide the 

numbers to a representative over the phone, or a voided 

check with the numbers, for entry into the Party Portal.”

FINRA Response, supra note 244, at 2.

249 FINRA, bY-laws, arTicle v, secTioN 3(a), http://

finra.complinet.com/en/display/display_main.

html?rbid=2403&element_id=4620.

250 FINRA, regisTered represeNTaTives brochure (2016), 

at 20, http://www.finra.org/sites/default/files/registeredrepresentatives-brochure.pdf.

251 FINRA, bY-laws, arTicle v, secTioN 3(b), http://

finra.complinet.com/en/display/display_main.

html?rbid=2403&element_id=4620.

252 See, e.g., FINRA rule 2010 (“[a] member, in the 

conduct of its business, shall observe high standards 

of commercial honor and just and equitable principles 

of trade.”).

253 See Report on Objectives, Fiscal Year 2017, supra note 4, 

at 32-33.

254 See, e.g., Letter from Judith Shaw, Pres., NASAA to Brent 

J. Fields, Sec’y, SEC (Aug. 3, 2016), at 1, https://www.sec.

gov/comments/sr-nysemkt-2016-52/nysemkt201652-1.

pdf; see also, FINRA, Regulatory Notice 11-06, 

Reporting Requirements (Feb. 2011), at 2, http://

www.finra.org/sites/default/files/NoticeDocument/

p122888.pdf.

255 Comment Letter, Tracey L. McNeil, Ombudsman, and 

Rick A. Fleming, Investor Advocate, SEC, RE: File Nos. 

SR-NYSEMKT-2016-52 and SR-NYSEArca-2016-103

(Oct. 3, 2016), at 4, https://www.sec.gov/about/offices/

investorad/investor-advocate-comment-letter-sr-nysemkt2016-52-sr-aysearca-2016-103.pdf. 

256 See Notice of Filing of Proposed Rule Change Amending 

Rules 2.17(c) and 2.23(i) to Harmonize the Requirement 

of When OTP Holders and OTP Firms Must File a 

Uniform Termination Notice for Securities Industry 

Registration With the Rules of Other Exchanges and 

FINRA, Exchange Act Release No. 78,381, 81 Fed. Reg. 

49,286 (published July 27, 2016) [hereinafter Arca Rule]; 

Self-Regulatory Organizations; NYSE MKT LLC; Notice 

of Filing of Proposed Rule Change Amending Rules 

340, 341, and 359 to Extend the Time Within Which a 

Member or Member Organization or an ATP Holder 

Must File a Uniform Termination Notice for Securities 

Industry Registration, Exchange Act Release No. 78,198, 

81 Fed. Reg. 44,363 (published July 7, 2016) [hereinafter 

MKT Rule].

257 See Arca Rule, supra note 256, at 49,287; see MKT 

Rule, supra note 256, at 44,364.

258 Id.

259 Letter from Elizabeth King, Gen. Couns. and Corp. 

Sec’y, NYSE MKT LLC, to Brent J. Fields, Sec’y, SEC 

(Aug. 12, 2016), at 2, https://www.sec.gov/comments/

sr-nysemkt-2016-52/nysemkt201652-2.pdf (“. . . unless 

FINRA moves to shorter filing time frame, it would be a 

burden on competition for the Exchange to maintain a 

different filing requirement for Form U5s.”).

260 Comment Letter, Tracey L. McNeil, Ombudsman, and 

Rick A. Fleming, Investor Advocate, SEC, RE: File Nos. 

SR-NYSEMKT-2016-52 and SR-NYSEArca-2016-103

(Oct. 3, 2016), https://www.sec.gov/about/offices/

investorad/investor-advocate-comment-letter-sr-nysemkt2016-52-sr-aysearca-2016-103.pdf.

261 This is not a theoretical concern. Consider, for example, 

recent allegations by FINRA against a trader and his 

sales assistant. FINRA has charged them with, from 

at least May 2011 through March 2012, engaging 

in a scheme to circumvent their former employer’s 

compliance and anti-money laundering policies in order 

to trade certain foreign bonds. See Complaint, FINRA 

Dept. of Enf’t v. Bocchino, et al., No. 2012032019101 

(Sept. 1, 2016), http://disciplinaryactions.finra.org/

Search/ViewDocument/66538. As alleged in the 

Complaint, the trader’s brokerage firm ultimately filed 

the required Form U5 on Friday, March 30, 2012.

However, a review of BrokerCheck indicates that 

the trader was discharged by the firm on March 1, 

2012 – a gap of 29 days. See BrokerCheck Report for 

John B. Bocchino, http://brokercheck.finra.org/Report/

Download/52819180. During this gap period permitted 

by existing FINRA rules, the terminated trader was able 

to quickly obtain employment at another firm and start 

his new employment on April 3, 2012. The Complaint 

does not address whether the trader sought to continue 

the illegal scheme at the new firm.

262 Order Instituting Proceedings to Determine Whether 

to Approve or Disapprove Proposed Rule Changes to 

Extend the Time Within Which a Member, Member 

Organization, an ATP Holder, an OTP Holder, or an 

OTP Firm Must File a Uniform Termination Notice for 

Securities Industry Registration (“Form U5”), Exchange 

Act Release No. 79,055, 81 Fed. Reg. 70,460 (published 

Oct. 12, 2016). By entering an order instituting 

proceedings, the Commission is requesting that 
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 69

interested persons provide written submissions of their 

views, data, and arguments with respect to the issues 

raised by the proposed rules changes and, in particular, 

whether the proposed rules changes are inconsistent 

with any provision of the Exchange Act, or the rules and 

regulations thereunder. Id. at 70,462.

263 BrokerCheck may be accessed at http://brokercheck.finra.

org. IAPD, a website sponsored by the SEC, provides 

important information disclosed by investment advisers 

and investment advisory firms disclosed in their Form 

ADVs. IAPD may be accessed at https://adviserinfo.sec.

gov/IAPD/Default.aspx.

264 See NBER Paper, infra note 265, at 14.

265 See, e.g., Mark Egan, Gregor Matvos, and Amit Seru, 

The Market for Financial Adviser Misconduct (NBER 

Working Paper No. 22050, Feb. 2016) [hereinafter 

NBER Paper], http://www.nber.org/papers/w22050.pdf; 

Stephen G. Dimmock, William C. Gerken, and Nathaniel 

P. Graham, Is Fraud Contagious? Career Networks and 

Fraud by Financial Advisors (Oct. 14, 2016), http://ssrn.

com/abstract=2577311; Craig J. McCann, Chuan Qin, 

and Mike Yan, How Widespread and Predictable is 

Stock Broker Misconduct? (Apr. 22, 2016), http://ssrn.

com/abstract=2768942.

266 FINRA Disciplinary Actions Online, http://

disciplinaryactions.finra.org.

267 NASAA maintains a web page that lists the contact 

information for the securities regulators for each state 

in the United States. See NASAA, Contact Your 

Regulator, http://www.nasaa.org/about-us/contact-us/

contact-your-regulator.

268 A list of these law school clinics is available at https://

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

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

270 Id.

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

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

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

274 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.”

275 For the full versions of the recommendations, see

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

276 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).

277 See 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.

278 See Notice of Filing of a Proposed Rule Change Relating 

to FINRA Rule 2232 (Customer Confirmations) 

to Require Members to Disclose Additional Pricing 

Information on Retail Customer Confirmations Relating 

to Transactions in Fixed Income Securities, Exchange 

Act Release No. 78,573, 81 Fed. Reg. 55,500 (published 

Aug. 19, 2016); Self-Regulatory Organizations; 

Municipal Securities Rulemaking Board; Notice of 

Filing of a Proposed Rule Change 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. 78,777, 81 Fed. 

Reg. 62,947 (published Sept. 13, 2016).

279 “Another core feature of the U.S. regulatory regime for 

equities is public price transparency on both a pre- and 

post-trade basis,” Chair White stated in a speech in 

October 2015. “Over the last decade, public post-trade 

transparency has also been extended to the corporate 

bond and municipal securities markets. Further work on 

pre-trade price transparency is also ongoing in both.”

Mary Jo White, Chair, SEC, Keynote Address at the 

Evolving Structure of the U.S. Treasury Market Conference, Federal Reserve Bank of New York: Taking Stock 

of Treasury Market Regulation (Oct. 20, 2015), https://

www.sec.gov/news/speech/taking-stock-of-treasury-market-regulation.html.

280 Michael S. Piwowar, Comm’r, SEC, Remarks at FINRA’s 

2016 Fixed Income Conference (Sept. 7, 2016), https://

www.sec.gov/news/speech/piwowar-remarks-finra-2016-

fixed-income-conference.html.

281 Jack Casey, Woodell Hopes to Start New Initiatives 

During Tenure as MSRB Chair, the boND buYer (Sept. 

30, 2016), http://www.bondbuyer.com/news/marketspeople/woodell-hopes-to-start-new-initiatives-duringtenure-as-msrb-chair-1114829-1.html.

282 Id.

283 See 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. 

284 SEC, Press Release, SEC Adopts Rules to Modernize 

Information Reported by Funds, Require Liquidity 

Risk Management Programs, and Permit Swing Pricing 

2016-215, (Oct. 13, 2016), https://www.sec.gov/news/

pressrelease/2016-215.html.

285 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. 
70 | OFFICE OF THE INVESTOR ADVOCATE

286 SEC, Recommendation of the Investor Advisory 

Committee: Shortening the Trade Settlement Cycle in 

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

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

settlement-cycle-recommendation-final.pdf.

287 Id.

288 Id. 

289 See Amendment to Securities Transaction Settlement 

Cycle, Exchange Act Release No. 78,962, 81 Fed. Reg. 

69,240 (proposed Oct. 5, 2016). For a summary and 

Fact Sheet, see SEC, Press Release: SEC Proposes Rule 

Amendment to Expedite Process for Settling Securities 

Transactions, 2016-200, (Sept. 28, 2016), https://www.

sec.gov/news/pressrelease/2016-200.html.

290 Mary Jo White, Chair, SEC, Statement at Open 

Meeting: Covered Clearing Agencies and Shortening the 

Settlement Cycle (Sept. 28, 2016) (“I believe that today’s 

Commission can best fulfill its commitment to serving 

investors and the markets by pursuing today’s proposal 

to move to T+2. However, I would expect that future 

Commissions, like ours is today, will review whether 

further reductions would be appropriate, in light of 

the technology, investor needs, and all other relevant 

circumstances at the time.”), https://www.sec.gov/news/

statement/white-statement-open-meeting-092816.

html; Michael S. Piwowar, Comm’r, SEC, Statement of 

Commissioner Piwowar at Open Meeting Regarding 

Proposal to Shorten the Trade Settlement Cycle, Sept. 28, 

2016, (“[T]o the extent the Commission adopts a rule 

for T+2, what, if anything, should we do with respect to 

further shortening the settlement cycle in the future?”), 

https://www.sec.gov/news/statement/piwowar-statementopen-meeting-092816.html. Kara M. Stein, Comm’r, 

SEC, Statement on the Proposed Rule Amendment to 

Shorten the Transaction Settlement Cycle (Sept. 28, 

2016) (the move to T+2 “should lay the groundwork 

for an even shorter settlement cycle.”), https://www.

sec.gov/news/statement/stein-second-statement-openmeeting-092816.html.

291 Both the Discussion and Economic Analysis sections of

the Release discuss the question of moving of a settlement 

cycle shorter than T+2. See Amendment to Securities 

Transaction Settlement Cycle, Exchange Act Release No. 

78,962, 81 Fed. Reg. 69,240, 69,259, 69,276-69,277 

(proposed Oct. 5, 2016).

292 The MSRB filed with the Commission a proposal

to amend two rules to define regular-way settlement 

for municipal securities transactions as occurring 

on a two-day settlement cycle (i.e., T+2) rather than 

the current three-day cycle. See Self-Regulatory 

Organizations; Municipal Securities Rulemaking 

Board; Order Granting Approval of a Proposed Rule 

Change Consisting of Proposed Amendments to Rules 

G–12 and G–15 to Define Regular-Way Settlement for 

Municipal Securities Transactions as Occurring on a 

Two-Day Settlement Cycle and Technical Conforming 

Amendments, Exchange Act Release No. 77,744, 81 

Fed. Reg. 26,851 (published May 4, 2016). 

293 FINRA, Regulatory Notice 16-09, Shortening the

Settlement Cycle for Securities to T+2 (Mar. 2016), 

https://www.finra.org/sites/default/files/notice_doc_file_

ref/Regulatory-Notice-16-09.pdf.

294 See Question 5, p. 79, SEC, Recommendation of the 

Investor Advisory Committee: Shortening the Trade 

Settlement Cycle in U.S. Financial Markets (Feb. 12, 

2015), http://www.sec.gov/spotlight/investor-advisorycommittee-2012/settlement-cycle-recommendationfinal.pdf.

295 Exchange Act Rule 14a-2(a)(1), 17 C.F.R. § 240.14a-2(a)

(1) (2015).

296 SEC, Recommendations of the Investor Advisory 

Committee: Impartiality in the Disclosure of Preliminary 

Voting Results (Oct. 9, 2014), http://www.sec.gov/

spotlight/investor-advisory-committee-2012/impartialitydisclosure-prelim-voting-results.pdf. 

297 SEC, Recommendation of the Investor Advisory 

Committee: Accredited Investor Definition (Oct. 9, 

2014), https://www.sec.gov/spotlight/investor-advisorycommittee-2012/accredited-investor-definitionrecommendation.pdf.

298 Staff of the SEC, Report on the Review of the Definition 

of “Accredited Investor” (Dec. 18, 2015), https://www.

sec.gov/corpfin/reportspubs/special-studies/reviewdefinition-of-accredited-investor-12-18-2015.pdf.

299 Id. at 90.

300 Id. at 90-91.

301 Id. at 91.

302 Id. at 94-96.

303 SEC, Recommendation of the Investor Advisory 

Committee: Crowdfunding Regulations (Apr. 10, 

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

304 Crowdfunding, Securities Act Release No. 9,974,

Exchange Act Release No. 76,324, 80 Fed. Reg. 71,

387 (adopted Nov. 16, 2015) (hereinafter 

“Crowdfunding Final Rule”).

305 Report on Objectives, Fiscal Year 2017, supra note 4.

306 SEC, Recommendation of Investor Advisory 

Committee: Decimalization and Tick Sizes (Jan. 31, 

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

307 See SEC, Letter Granting Exemption Under Rule 608(e) 

of Regulation NMS, (Sept. 13, 2016) https://www.sec.

gov/divisions/marketreg/mr-noaction/2016/exemption608e-tick-size-pilot-091316.pdf.

308 Order Directing the Exchanges and the Financial

Industry Regulatory Authority to Submit a Tick Size Pilot 

Plan, Exchange Act Release No. 72,460, 79 Fed. Reg. 

36,840 (published June 30, 2014).
REPORT ON ACTIVITIES: FISCAL YEAR 201 6 | 71

309 Joint Industry Plans; Order Approving the National

Market System Plan to Implement a Tick Size Pilot 

Program by BATS Exchange, Inc., BATS Y-Exchange, 

Inc., Chicago Stock Exchange, Inc., EDGA Exchange, 

Inc., EDGX Exchange, Inc., Financial Industry 

Regulatory Authority, Inc., NASDAQ OMX BX, Inc., 

NASDAQ OMX PHLX LLC, The Nasdaq Stock 

Market LLC, New York Stock Exchange LLC, NYSE 

MKT LLC, and NYSE Arca, Inc., as Modified by the 

Commission, for a Two-Year Period, Exchange Act 

Release No. 74,892, 80 Fed. Reg. 27,513 (published 

May 13, 2015).

310 Id. at 68 n.269.

311 SEC, Recommendation of the Investor Advisory 

Committee: Legislation to Fund Investment Adviser 

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

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

312 Id.

313 SEC, Budget Reports, FY 2015 Congressional Budget

Justification, FY 2015 Annual Performance Plan and FY 

2013 Annual Performance Report (Mar. 7, 2014), at 5, 

https://www.sec.gov/about/reports/secfy15congbudgjust.

pdf (last visited May 12, 2016).

314 SEC, FY 2016 Budget Request Tables, http://www.sec.

gov/about/reports/sec-fy2016-budget-request-tables.pdf; 

SEC, FY 2016 Budget Request by Program, at 66 and 

68, http://www.sec.gov/about/reports/sec-fy2016-budgetrequest-by-program.pdf.

315 SEC, Budget Reports, FY 2017 Congressional Budget

Justification, FY 2017 Annual Performance Plan and 

FY 2015 Annual Performance Report: The FY 2017 

(Feb. 9, 2016), at 5, http://www.sec.gov/about/reports/

secfy17congbudgjust.pdf.

316 Mark Wyatt, OCIE Director, SEC, Remarks before 

the IAC (Apr. 14, 2016), video replay available at 

http://www.sec.gov/video/webcast-archive-player.

shtml?document_id=041416iac.

317 Wyatt argued that this mistake was akin to assuming that 

a portfolio manager holding a hundred stocks had only 

looked at those one hundred companies: “The portfolio 

manager took the entire investable universe, she then 

applied filters to highlight a subset, and then she and her 

team conducted extensive due diligence to come up with 

an even more refined list of opportunities and ultimately 

she invested in those companies that she thought had 

the highest chance of her providing the performance she 

wants to give to her investors,” Wyatt remarked. “We 

do the same, except we’re looking for risks, not upside...

[W]e arrive a list of firms we ultimately examine because 

they represent a heightened risk to investors.” Mark 

Wyatt, OCIE Director, SEC, Remarks before the IAC 

(Apr. 14, 2016), video replay available at http://www.

sec.gov/video/webcast-archive-player.shtml?document_

id=041416iac.

318 Mary Jo White, Chair, SEC, Remarks to the Investor 

Advisory Committee (Apr. 14, 2016), https://www.sec.

gov/news/statement/white-statement-041416.html.

319 SEC, Recommendation of the Investor Advisory 

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

2013), http://www.sec.gov/spotlight/investor-advisorycommittee-2012/fiduciary-duty-recommendation2013.pdf. 

320 Mary Jo White, Chair, SEC, Testimony before the 

H. Subcomm. on Fin. Services: Examining the SEC’s 

Agenda, Operations and FY 2016 Budget Request, 

113th Cong. (Mar. 24, 2015), http://www.sec.gov/news/

testimony/2015-ts032415mjw.html.

321 Mary Jo White, Chair, SEC, Opening Remarks to the 

Investor Advisory Committee (Apr. 9, 2015), https://

www.sec.gov/news/statement/opening-remarks-to-theinvestor-advisory-committee.html.

322 See Mark Schoeff Jr., SEC Chairwoman Mary Jo White 

Says Agency Mulling Fiduciary Duty, Investment News

(Sept. 12, 2016), http://www.investmentnews.com/

article/20160912/FREE/160919991/sec-chairwomanmary-jo-white-says-agency-mulling-fiduciary-duty.

323 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.

324 See Universal Proxy, Exchange Act Release No. 79,164, 

Investment Company Act Release No. 32,339, 81 Fed. 

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

325 See SEC, https://www.sec.gov/spotlight/proxy-votingroundtable.shtml (last visited Oct. 17, 2016).

326 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), http://www.sec.gov/spotlight/investoradvisory-committee-2012/data-tagging-resolution72513.pdf. 

327 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. 78,041, 81 Fed. Reg. 39,741 

(published June 17, 2016).

328 Pay Versus Performance, Exchange Act Release No. 

74,835, 80 Fed. Reg. 26,329 (proposed May 7, 2015).

329 Business and Financial Disclosure Required by

Regulation S-K, Exchange Act Release No. 77,599, 81 

Fed. Reg. 23,915 (published Apr. 22, 2016).

330 Disclosure of Payments by Resource Extraction Issuers,

Exchange Act Release No. 78,167, 81 Fed. Reg. 49,359 

(adopted July 27, 2016).
72 | OFFICE OF THE INVESTOR ADVOCATE

331 Modernization of Property Disclosures for Mining

Registrants, Securities Act Release No. 10,098, Exchange 

Act Release No. 78,086, 81 Fed. Reg. 41,651 (proposed 

June 27, 2016).

332 Investment Company Reporting Modernization,

Securities Act Release No. 10,231, Exchange Act Release 

No. 79,095, Investment Company Act Release No. 

32,314, 80 Fed. Reg. 81,870 (adopted Nov. 18, 2016).

333 Disclosure of Order Handling Information, Exchange

Act Release No. 78,309, 81 Fed. Reg. 49,341 (proposed 

July 27, 2016).

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

Activities, Fiscal Year 2015, supra note 215; Report on 

Objectives, Fiscal Year 2016, supra note 3.

335 Establishing the Form and Manner with which

Security-Based Swap Data Repositories Must Make 

Security-Based Swap Data Available to the Commission, 

Exchange Act Release No. 76,624, 80 Fed. Reg. 79,757 

(proposed Dec. 23, 2015).

336 Registration Process for Security-Based Swap Dealers and

Major Security-Based Swap Participants, Exchange Act 

Release No. 75,611, 80 Fed. Reg. 48,963 (adopted 

Aug. 14, 2015).

337 Regulation of NMS Stock Alternative Trading Systems, 

Exchange Act Release No. 76,474, 80 Fed. Reg. 80,997 

(proposed Dec. 28, 2015).

338 Use of Derivatives by Registered Investment Companies

and Business Development Companies, Investment 

Company Act Release No. 31,933, 80 Fed. Reg. 80,883 

(proposed Dec. 28, 2015).

339 Listing Standards for Recovery of Erroneously Awarded 

Compensation, Securities Act Release No. 9,861, 

Exchange Act Release No. 75,342, Investment Company 

Act Release No. 31,702, 80 Fed. Reg. 41,143 (proposed 

July 14, 2015).

340 Amendments for Small and Additional Issues

Exemptions Under the Securities Act (Regulation A), 

Securities Act Release No. 9,741, Exchange Act Release 

No. 74,578, Trust Indenture Act Release No. 2,501, 80 

Fed. Reg. 21,805 (adopted Apr. 20, 2015).

341 Crowdfunding Final Rule, supra note 304.

342 Asset-Backed Securities Disclosure and Registration,

Securities Act Release No. 9,638, Exchange Act Release 

No. 72,982, 79 Fed. Reg. 57,183 (adopted Sept. 

24, 2014).

343 Open-End Fund Liquidity Risk Management Programs;

Swing Pricing; Re-Opening of Comment Period for 

Investment Company Reporting Modernization Release, 

Securities Act Release No. 9,922, Investment Company 

Act Release No. 31,835, 80 Fed. Reg. 62,273 (proposed 

Oct. 15, 2015).

344 Money Market Fund Reform; Amendments to Form PF, 

Securities Act Release No. 9,616, Investment Advisers 

Act Release No. 3,879, Investment Company Act Release 

No. 31,166, 79 Fed. Reg. 47,735, 47944 (adopted 

Aug. 14, 2014).

345 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.

346 Investment Company Advertising: Target Date 

Retirement Fund Names and Marketing, Securities Act 

Release No. 9,126, Exchange Act Release No. 62,300, 

Investment Company Act Release No. 29,301, 75 Fed. 

Reg. 35,920 (proposed June 23, 2010).

347 Investment Company Advertising: Target Date 

Retirement Fund Names and Marketing, Securities Act 

Release No. 9,570, Exchange Act Release No. 71,861, 

Investment Company Act Release No. 31,004, 79 Fed. 

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

348 SEC, Recommendation 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 (Oct. 12, 

2012), https://www.sec.gov/spotlight/investor-advisorycommittee-2012/iac-general-solicitation-advertisingrecommendations.pdf. Title II of the JOBS Act requires 

the SEC to lift the ban on general solicitation and 

advertising in Rule 506 securities offerings. Jumpstart 

Our Business Startups Act, Pub. L. No. 112-106, § 

201(a), 126 Stat. 306, 313 (2012).

349 Eliminating the Prohibition Against General Solicitation 

and General Advertising in Rule 506 and Rule 144A 

Offerings, Securities Act Release No. 9,415, Exchange 

Act Release No. 69,959, Investment Advisers Act Release 

No. 3,624,78 Fed. Reg. 44,771 (adopted July 24, 2013).

350 Disqualification of Felons and Other “Bad Actors” from 

Rule 506 Offerings, Securities Act Release No. 9,414, 78 

Fed. Reg. 44,729 (adopted July 24, 2013).

351 Amendments to Regulation D, Form D and Rule 156, 

Securities Act Release No. 9416, Exchange Act Release 

No. 69,960, Investment Company Act Release No. 

30,595, 78 Fed. Reg. 44,806 (proposed July 24, 2013).

OFFICE OF THE 

INVESTOR ADVOCATE

U.S. Securities and 

Exchange Commission

100 F Street NE

Washington, DC 20549

202.551.3302