REPORT ON ACTIVITIES FISCAL YEAR 2015
 

Office of the 

Investor

 Advocate 

U.S. SECURITIES AND EXCHANGE COMMISSION
 
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, as 

codified under Section 4(g) of the Securities 

Exchange Act of 1934, 15 U.S.C. § 78d(g). 
OFFICE OF THE INVESTOR ADVOCATE 

REPORT ON ACTIVITIES
 

FISCAL YEAR 2015 

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 (the “Dodd-Frank Act”), as codified 

under Section 4(g) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. 

§ 78d(g). Exchange Act Section 4(g)(2)(A)(ii) provides that the Investor Advocate be appointed 

by the Chair of the U.S. Securities and Exchange Commission (the “Commission” or the “SEC”) 

in consultation with the other Commissioners and that the Investor Advocate report directly to 

the Chair.1 On February 24, 2014, SEC Chair Mary Jo White appointed Rick A. Fleming as the 

Commission’s first Investor Advocate. 

Exchange Act Section 4(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.2 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.3 On June 30, 2014, the Office of the Investor Advocate (“the Office”) 

filed a Report on Objectives for Fiscal Year 2015, which identified six policy areas that the Office 

would focus upon during the year.4 Similarly, the Office filed a Report on Objectives for Fiscal 

Year 2016 on June 30, 2015. 

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 

Commission and self-regulatory organizations (“SROs”) 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 2015 is organized primarily around our six areas of 

policy focus that were announced in our Report on Objectives for Fiscal Year 2015. In each of 

those areas, we have striven 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 begun to make 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, 2014 to September 30, 2015 

(the “Reporting Period”). 

REPORT ON ACTIVITIES: FISCAL YEAR 201 5 | i
Functions of the Investor 

Advocate 

According to Exchange Act Section 

4(g)(4), 15 U.S.C. § 78d(g)(4), the 

Investor Advocate shall: 

(A) assist retail investors in resolv

ing 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. 

Reporting Obligation 

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 appropri

ate to resolve problems encountered by 

investors; and 

(VI) any other information, as determined 

appropriate by the Investor Advocate. 

 

­

­

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

(iii), this Report is provided directly to Congress without any prior review or comment from the 

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

of Management and Budget. Accordingly, the Report expresses solely the views of the Investor 

Advocate. It does not necessarily reflect the views of the Commission, the Commissioners, or staff 

of the Commission, and the Commission disclaims responsibility for the Report and all analyses, 

findings, and conclusions contained herein. 

ii | OFFICE OF THE INVESTOR ADVOCATE 
CONTENTS
 

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

REPORT ON ACTIVITIES AND RECOMMENDATIONS RELATING TO THE 

FISCAL YEAR 2015 POLICY AGENDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
 

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

Investor Flight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
 

Municipal Market Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
 

Data Protection and Cybersecurity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
 

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

Elder Abuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
 

MOST PROBLEMATIC INVESTMENT PRODUCTS AND PRACTICES. . . . . . . . . . . . . . . .13
 

Exchange Traded Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
 

Municipal Market Disclosure Practices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
 

Master Limited Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
 

OMBUDSMAN’S REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
 

Ombudsman Service Behind the Numbers —Restoring Investor Confidence,
 

Rethinking Procedures, and Creating a Forum for Discussion and
 

Establishing a Foundation for Meaningful Service . . . . . . . . . . . . . . . . . . . . . . . .21
 

Standards of Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
 

Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
 

Impartiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
 

Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
 

Ombudsman Matter Management System . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
 

Ombudsman Service By the Numbers — FY 2015 . . . . . . . . . . . . . . . . . . . . . . . . 23
 

Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
 

Restoring Investor Confidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
 

Rethinking Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
 

Creating a Forum for Discussion and Recommendations . . . . . . . . . . . . . . . . . .27
 

Outlook. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
 

SUMMARY OF INVESTOR ADVISORY COMMITTEE 

RECOMMENDATIONS AND SEC RESPONSES . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
 

Empowering Elders and Other Investors: Background Checks
 

in the Financial Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
 

Shortening the Trade Settlement Cycle in U.S. Financial Markets . . . . . . . . . . . . . . . 30
 

Impartiality in the Disclosure of Preliminary Voting Results . . . . . . . . . . . . . . . . . . 30
 

The Accredited Investor Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
 

Crowdfunding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
 

Decimalization and Tick Sizes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
 

Legislation to Fund Investment Adviser Examinations . . . . . . . . . . . . . . . . . . . . . 32
 

Broker-Dealer Fiduciary Duty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
 

Universal Proxy Ballots. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
 

Data Tagging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
 

Target Date Mutual Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
 

General Solicitation and Advertising. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
 

ENDNOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
 

REPORT ON ACTIVITIES: FISCAL YEAR 201 5 | iii
In addition to our Ombudsman function, our 

Office exists to provide a voice for investors in 

the policymaking process at the Commission, at 

SROs, and even in Congress. 
MESSAGE FROM THE
 

INVESTOR ADVOCATE
 

At the beginning of Fiscal Year 2015, the 

Office of the Investor Advocate had 

been in existence for approximately 

seven months. We started the year with five staff 

members and an ambitious agenda. I am extremely 

proud of the work they have done and the 

foundation we have laid for the future. 

The SEC Ombudsman, Tracey L. McNeil, began 

her duties just days before the fiscal year began. 

For most of the year, she worked alone, building a 

framework to resolve the concerns that investors 

may have with the actions or inactions of the 

Commission and the self-regulatory organizations 

under the Commission’s oversight. This Report on 

Activities includes a report of the Ombudsman’s 

impressive work during the year, and with the 

addition late in the year of two persons to assist 

those efforts, we look forward to providing an 

even greater level of direct service to investors in 

the year ahead. 

In addition to our Ombudsman function, our 

Office exists to provide a voice for investors in the 

policymaking process at the Commission, at SROs, 

and even in Congress. As a new office, we focused 

our efforts in six primary areas of policy during 

Fiscal Year 2015: equity market structure, investor 

flight, municipal market reform, cybersecurity, 

effective disclosure, and elder abuse. Our activities 

and recommendations within each of those policy 

areas are described in detail in this Report. 

Our level of engagement in these policy areas 

has varied. I spoke early and often about the 

problem of elder abuse, in formal speeches and 

informal conversations, and was vocal in support 

of efforts to give financial professionals greater 

ability to stop financial exploitation of customers. 

I also advocated publicly for several reforms in 

the municipal securities markets and engaged 

frequently with the 

Municipal Securities 

Rulemaking Board and 

others on matters of great 

concern to the investors 

in those markets, most of 

whom are retail investors. 

Furthermore, I articulated 

the need for modernizing not just the content 

of disclosures, but also 

the methods by which 

disclosures are presented 

to investors, and I expressed support, both in 

public speeches and behind the scenes, for greater 

utilization of structured data. 

Our engagement in policy debates involving 

equity market structure and our evaluation of 

investor participation in that market were greatly 

enhanced in the summer of 2015 with the addition 

of key staff who brought the expertise to provide 

counsel on those matters. We recently have begun 

the process of reviewing the many rulemakings 

of the national securities exchanges, as well as 

Commission rulemakings that will impact investors 

in the equity markets. 

As the year progressed, and repeated data breaches 

plagued not only the financial services industry but 

also retailers, health care providers, government 

REPORT ON ACTIVITIES: FISCAL YEAR 201 5 | 1
 

 

agencies, and seemingly every type of entity, it 

became clear that appropriate responses and 

solutions must be broad-based and cross multiple 

sectors of industry and government. Solutions of 

this nature are beyond the scope of the Office of 

the Investor Advocate, so we have focused instead 

on the efforts of the Commission and the Financial 

Industry Regulatory Authority to encourage 

financial services providers and market participants 

to bolster their defenses. We have not made any 

formal recommendations for new rules or policies 

to address these issues, but we continue to monitor 

developments in this area. 

Late in the fiscal year, the Office achieved another 

milestone with the addition of an economist, Dr. 

Brian Scholl. With the support of SEC Chair Mary 

Jo White and many others at the Commission, 

including the Division of Economic and Risk 

Analysis and the Office of Investor Education and 

Advocacy, Dr. Scholl has begun developing plans 

for conducting more regular data collection from 

individual investors. Of course, most individual 

investors do not follow the activities of the 

Commission or SROs, much less submit comments 

in response to proposed rules, so we hope to use 

investor surveys and focus group testing to provide 

greater insights into the needs of investors. We 

believe this will become an important source of 

information for policymakers and will help them 

make better informed policy decisions. 

On behalf of the Office of the Investor Advocate, I 

am pleased to present this report to Congress, and I 

would be happy to answer any questions about our 

activities. 

Sincerely, 

Rick A. Fleming 

Investor Advocate 

2 | OFFICE OF THE INVESTOR ADVOCATE 
 

 

 

REPORT ON ACTIVITIES AND
 

RECOMMENDATIONS
 

RELATING TO THE FISCAL YEAR 2015
 

POLICY AGENDA
 

On June 30, 2014, the Office of the 

Investor Advocate filed a Report on 

Objectives for Fiscal Year 2015.7 The 

Report identified six key policy areas that would be 

the primary focus of the Office during its first full 

year of existence: equity market structure, investor 

flight, municipal market reform, cybersecurity, 

effective disclosure, and elder abuse. This Report 

on Activities describes our activities and recommendations within each of those policy areas during 

Fiscal Year 2015 (“FY 2015”). 

EQUITY MARKET STRUCTURE 

In FY 2015, the Office of the Investor Advocate 

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 to examine their potential impact on investors 

and advocated for improvements that would 

benefit and protect investors. In addition, we 

spent significant time and effort advocating for 

investors behind the scenes on initiatives that are 

not yet public. 

During the Reporting Period, the Commission 

and SROs have taken certain steps to bolster risk 

management and resilience in the equity markets. 

In November 2014, the Commission adopted 

Regulation Systems Compliance and Integrity 

(“Reg SCI”), designed to strengthen the technology 

infrastructure of the U.S. securities markets.8 In 

March 2015, as part of its equity trading initia

tives, the Financial Industry Regulatory Authority 

(“FINRA”) issued guidance to its members on 

­

effective supervision and control practices for 

firms engaging in algorithmic trading strategies.9 

Then, in July 2015, following an hours-long 

trading outage on the New York Stock Exchange 

(“NYSE”) on July 8, 2015, both NYSE and 

Nasdaq Stock Market LLC (“Nasdaq”) announced 

an agreement to back up each other’s closing 

auctions in the event of trading outages.10 

Several efforts are under way to improve 

Regulation National Market System (“NMS”).11 

In May 2015, the Commission’s Equity Market 

Structure Advisory Committee (the “EMSAC”) met 

for the first time to discuss and debate the structure 

and operations of the U.S. equities market.12 The 

EMSAC currently is considering the implications 

of Regulation NMS, including Rule 611 (also 

known as the “Order Protection Rule”),13 and 

publicly has indicated an interest in evaluating the 

complex interaction between Rule 611 and other 

parts of Regulation NMS. This could include order 

execution and routing information under Rules 605 

and 606, access fees under Rule 610, and one-cent 

minimum pricing under Rule 612.14 

Several SROs also have proposed reforms to 

Regulation NMS that could provide benefits to 

investors. In December 2014, Intercontinental 

Exchange, Inc., as parent company of three 

exchanges, proposed to reduce the maximum 

exchange access fees under Rule 610 in return 

for a “trade at” rule that would give more precedence to exchanges displaying the best orders 

under Rule 611.15 In January 2015, BATS Global 

Markets, Inc. (“BATS”), as parent company of 

REPORT ON ACTIVITIES: FISCAL YEAR 201 5 | 3
 

 

four exchanges, filed a Petition for Rulemaking 

(“Petition”) with the Commission to amend 

Regulation NMS to reduce access fees, enhance 

transparency by requiring brokers to disclose 

their execution quality more effectively, and 

reduce fragmentation by denying small trading 

centers certain advantages currently afforded by 

Regulation NMS.16 In February 2015, Nasdaq 

implemented an experimental pricing schedule to 

lower access fees for a small number of securities 

trading on its market.17 

As noted in BATS’s Petition, enhancements to 

Regulation ATS18 are also under discussion. 

Currently, around 35 percent of market volume in 

NYSE and Nasdaq-listed stocks is executed in dark 

alternative trading systems (“ATSs”) and brokerdealer platforms, rather than on lit venues like 

exchanges.19 In November 2014, FINRA issued 

Regulatory Notice 14-48, expanding its ATS transparency initiative through a proposal to publish the 

remaining equity volume executed over-the-counter, 

including non-ATS electronic trading systems and 

internalized trades.20 The Commission subsequently approved the FINRA proposal in October 

2015, noting the enhancement was intended to 

make the OTC market more transparent, to 

help prevent fraudulent and manipulative acts 

and practices, and to protect investors and the 

public interest.21 

The Office of the Investor Advocate is responsible 

for, among other things, analyzing the potential 

impact on investors of proposed rules of SROs.22 

In furtherance of this objective, the Office has 

analyzed the potential impact of various other 

SRO proposals related to equity market structure. 

For example, in August 2015, the BATS Exchange 

proposed to adopt a new rule to prevent layering 

and spoofing on the exchange by creating a process 

for expedited suspension proceedings.23 The Office 

has been monitoring the public comment process 

and evaluating the proposal’s potential impact 

on investors. 

In addition, the Office continues to monitor SRO 

activity to address concerns about trading speeds 

through flexible, competitive solutions. In June 

2015, the Chicago Stock Exchange proposed an 

intra-day and on-demand auction service that 

deemphasizes speed as a hallmark of its functionality.24 In its subsequent October 2015 approval of 

the SRO filing, the Commission noted the proposal 

was intended to deemphasize speed advantages 

and concluded it was reasonably designed to help 

promote just and equitable principles of trade, 

remove impediments, and perfect the mechanisms 

of a free and open market.25 In September 2015, 

the Commission published notice of a registration 

application for Investors’ Exchange, LLC (“IEX”) 

and began considering whether to grant the 

registration to an exchange that provides access to 

participants with a hardwired 350 microseconds of 

latency to the primary trading platform.26 

The Office also has monitored the developments 

in the upcoming Tick Size Pilot by the various 

SROs. In May 2015, the Commission approved a 

proposal by the national securities exchanges and 

FINRA for a two year pilot program widening 

the minimum quoting and trading increments— 

or “tick sizes”—for stocks of some smaller 

companies.27 The Commission intends to use 

the pilot, which is scheduled to begin in October 

2016, to assess whether wider tick sizes enhance 

the market quality of these stocks for the benefit of 

issuers and investors. 

Other market participants, including asset 

managers, believe the market could be adjusted 

to serve investors better, and they have voiced 

corresponding opinions and suggestions.28 In April 

2014, Blackrock, Inc. published a white paper 

which discussed fragmentation, high frequency 

trading, off-exchange trading, and other matters 

and offered recommendations to improve market 

quality and stability.29 In October 2014, the 

Investment Company Institute (“ICI”), Managed 

Funds Association (“MFA”), and the Securities 

4 | OFFICE OF THE INVESTOR ADVOCATE 
 

 

 

Industry and Financial Markets Association 

(“SIFMA”) submitted to the Commission a 

template for the disclosure of order routing and 

execution quality information, and they encouraged 

the Commission to consider the template for any 

potential rulemaking related to Rules 605 and 

606 of Regulation NMS.30 Our Office continues 

to analyze these and other proposals, with an 

eye toward championing ideas and concepts that 

appear most likely to enhance equity market 

structure for the benefit of investors. 

Our efforts to engage policymakers in these 

important issues were greatly enhanced in June 

2015 by the addition of a staff attorney with 

experience in issues related to trading and markets, 

as well as support staff to assist with monitoring all 

SRO rule filings. With these enhanced capabilities, 

the Investor Advocate made his first formal 

recommendation to the Commission on October 

16, 2015, shortly after the close of the Reporting 

Period. 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.31 We will continue to engage in robust 

advocacy for investors in rules proposed by the 

national securities exchanges and other SROs. 

Although regulatory reforms moved forward in 

FY 2015 as noted above, some have observed 

that progress has been slow.32 Nevertheless, our 

concern about the pace of regulatory reform is 

ameliorated to some degree by two factors. First, 

significant work has been done behind the scenes 

on certain reforms, and we expect those efforts to 

result in rulemakings in the relatively near term.33 

Second, we believe 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 2015, the Commission charged 

and settled actions against a national securities 

exchange and two ATSs, focusing attention on the 

need for transparency and fair dealings across all 

trading venues.34 For example, in August 2015, 

the Commission settled with ITG Inc. and its 

affiliate, AlterNet Securities, for operating a secret 

trading desk and misusing the confidential trading 

information of dark pool subscribers for the firms’ 

benefit.35 The Commission also charged and settled 

actions against a number of market intermediaries 

for Market Access Rule violations and inaccurate 

regulatory trade reporting, thereby focusing 

attention on the role of gatekeepers in maintaining 

fair and orderly markets.36 In one such case, 

the Commission settled an action against Credit 

Suisse Securities in September 2015 for submitting 

deficient blue sheet data to the Commission that 

omitted reportable trades.37 As noted in the order, 

accurate reporting of blue sheet data helps the 

Commission detect unlawful conduct. 

The Commission also charged a variety of 

individuals and entities with market manipulation during the Reporting Period, including for 

layering, marking-the-close, and wash trades.38 

For example, in October 2014, the Commission 

settled an action against Athena Capital Research 

(“Athena”), charging that the firm had placed 

a large number of aggressive, rapid fire trades 

in the final two seconds of almost every trading 

day.39 By marking-the-close, Athena overwhelmed 

the market’s bona fide liquidity and pushed the 

market price in Athena’s favor to the detriment of 

legitimate investors. Similarly, in January 2015, the 

Commission charged an individual with layering, 

alleging that he orchestrated an order placement 

scheme to trick investors into buying or selling 

stock at artificially inflated or depressed prices.40 

These and similar enforcement actions should serve 

as deterrents to other bad actors. 

INVESTOR FLIGHT 

In the wake of losses suffered during the financial 

crisis of 2008–2010, and in the face of greater 

market complexity and speed, some have 

questioned whether individual investors perceive 

REPORT ON ACTIVITIES: FISCAL YEAR 201 5 | 5
 

the markets to be fair. Thus, concurrent with our 

evaluation of equity market structure, the Office 

began to explore whether individual investors have 

abandoned the equity markets in recent years. 

The issue of investor flight, particularly in relation 

to equity investment, is important for the financial 

services industry, household and institutional 

investors, policymakers, and others. If the average 

person is reluctant to invest in financial assets, it 

could reduce the demand for financial services, 

in addition to several other ramifications. For 

example, it could limit wealth accumulation 

by households, which might ultimately render 

individuals unprepared for some of the challenges 

inherent in the later stages of life. More generally, 

the lack of household participation in the equity 

market seems to suggest that the significant 

financial gains of recent years have not flowed 

broadly across the population, which could 

contribute to or exacerbate wealth inequality. 

Ultimately, this phenomenon, if borne out by 

the data, could potentially limit population-wide 

support for pro-capital institutional systems and 

structures that are so vital to the process of capital 

formation and a stable investment environment. 

Our efforts to study these matters could not begin 

in earnest until late in the Reporting Period, with 

the addition of staff possessing the expertise 

required to engage in substantive analysis of 

available data. Based on the Office’s initial research, 

which will be developed further and scrutinized in 

the coming months, we make the following preliminary observations, some of which are corroborated 

by the findings of other research in this area: 

§ Direct stock ownership is not prevalent among 

households, creating a well-known puzzle 

for economists. Direct stock ownership is 

significantly below optimal levels, according 

to benchmark economic theories. These low 

ownership rates predate the financial crisis 

and are not a new phenomenon. Even in high 

income and wealth categories, direct stock 

ownership is far from universal.41 

§ Not surprisingly, households in lower income 

and wealth quantiles of the distribution are 

far less likely to own stock, and far less likely 

to own stock in any significant amount, than 

those in higher income and wealth quantiles. 

Direct stock ownership becomes somewhat 

more prevalent only at the very highest wealth 

quantiles, representing a small fraction of the 

population. 

§ In the wake of the financial crisis, direct 

ownership rates for publicly traded stock are 

lower than they were prior to the crisis. This 

holds true for the population as a whole, 

and across almost every income and wealth 

category. In fact, for many income quantiles we 

examined, ownership rates appear to be even 

lower than they were in the late 1980s and 

early 1990s. 

§ The likelihood of owning stock conditional on 

a variety of observed household characteristics 

appears to have been lower in 2013 than it was 

in 2007. This preliminary result suggests that 

even if the financial situation of a particular 

family did not change in real terms over the 

intervening years, that same family would have 

been less likely to directly own publicly traded 

stock in 2013 than in 2007. However, declines 

in ownership rates also predated the financial 

crisis, suggesting that the financial crisis may not 

be the sole event affecting the likelihood of stock 

ownership. 

§ Trust in financial institutions has rebounded 

slightly after plummeting during the depths 

of the financial crisis and recession, but still 

remains at historical lows. Some measures 

suggest that such confidence over the past 

several years has been at or below any other 

point in the prior 40 years. This lack of 

confidence may weigh on investor participation. 

6 | OFFICE OF THE INVESTOR ADVOCATE 
The study of investor flight is somewhat compli

cated by underlying demographic and economic 

developments, a rapid succession of shocks to 

financial and labor markets, continued delever

aging, and other factors. Moreover, the limits 

to currently available data provide an impediment 

to studying this topic. Despite these challenges, 

we will continue our efforts to understand 

investor flight and contribute to research 

concerning this issue. 

MUNICIPAL MARKET REFORM 

During the Reporting Period, the Office of the 

Investor Advocate worked with Commission staff 

and relevant SROs to encourage municipal market 

reforms. This year, the Office has focused its efforts 

primarily on post-trade price transparency in the 

fixed income markets and on analyzing proposed 

rules and rule amendments of SROs. 

On October 31, 2014, the Office filed a comment 

letter with the Municipal Securities Rulemaking 

Board (“MSRB”) suggesting that the MSRB 

assign a higher ranking to price transparency in its 

long-term Strategic Priorities.42 Then, on January 

20, 2015, the Office filed two comment letters— 

one with the MSRB and one with FINRA— 

regarding their proposed rules requiring dealers to 

include pricing reference information on customer 

confirmations for fixed income securities transac

tions.43 The Office generally supported these 

proposals, seeing them as coordinated steps toward 

improving the availability of pricing information 

for retail investors.44 After consideration of these 

and other comment letters, the MSRB and FINRA 

issued revised proposals on September 24, 2015, 

and October 12, 2015, respectively.45 The Office 

will continue its review and analysis of these 

proposals and take appropriate action, as 

necessary, in Fiscal Year 2016. 

On July 13, 2015, the Office filed a public 

comment in response to the MSRB’s draft 

amendment to MSRB Rule A-3 regarding 

membership on the MSRB Board of Directors 

­

­

­

(“MSRB Board”). In the comment letter, the 

Investor Advocate opposed the proposed modifica

tions to the standard of independence as applied to 

the public investor representative seat on the MSRB 

Board.46 In place of the proposed amendment, 

the Investor Advocate encouraged the MSRB to 

consider two potential alternatives—changing the 

length of Board members’ service and allowing 

confidential treatment of applicants for the public 

investor representative seat—to address the MSRB’s 

concern about attracting qualified applicants for 

the public investor representative seat.47 

In a September 17, 2015 press release, the MSRB 

Board indicated it would not pursue the proposed 

changes to MSRB Rule A-3 and announced that 

the MSRB will establish an investor advisory 

group to provide the MSRB Board with expertise 

on municipal market practices, transparency, and 

investor protection issues.48 Also, on October 5, 

2015, the MSRB published Regulatory Notice 

2015-18 requesting comments on amendments 

to Rule A-3 to lengthen the term of MSRB Board 

service from three years to four years.49 The Office 

filed a comment letter in support of the MSRB’s 

proposed amendments outside of the Reporting 

Period.50 

DATA PROTECTION AND 

CYBERSECURITY 

FY 2015 was riddled with data breaches and 

cyber-attacks at a wide variety of companies and 

government agencies.51 In one such instance, 

the breach of a financial services company’s data 

impacted 76 million households and seven million 

small businesses.52 Additionally, the average total 

organizational cost of a data breach in the United 

States is estimated to be $6.5 million in 2015, and 

it continues to increase.53 

Investors, in particular, could experience significant 

harm from cybersecurity weaknesses. For example, 

investors could suffer from trading disrup

tions in targeted financial markets, breaches of 

investors’ personal information, or conversion of 

­

­

REPORT ON ACTIVITIES: FISCAL YEAR 201 5 | 7
 

 

funds. Consequently, the Office of the Investor 

Advocate has monitored the cybersecurity and data 

protection efforts of the SEC, SROs, Congress, and 

key market participants. 

The SEC and SROs began addressing cybersecurity before the Reporting Period.54 In January 

2014, for example, FINRA announced plans 

to conduct a targeted examination to assess 

firms’ approaches to managing cybersecurity 

threats.55 On March 26, 2014, the SEC hosted 

a public Cybersecurity Roundtable to review the 

challenges facing public companies and market 

participants. The Roundtable included discussion 

of the cybersecurity landscape and its impact 

on public company disclosure, market systems, 

broker-dealers, investment advisers, and transfer 

agents.56 Then, in April 2014, the SEC’s Office 

of Compliance, Inspections, and Examinations 

(“OCIE”) announced plans for examinations of 

registered broker-dealers and registered investment 

advisers “to assess cybersecurity preparedness in 

the securities industry and to obtain information 

about the industry’s recent experiences with certain 

types of cyber threats.”57 

The cybersecurity initiatives of FINRA and OCIE 

have continued into FY 2015.58 After completing 

its cybersecurity assessment, FINRA issued a 

corresponding Report on Cybersecurity Practices 

outlining “principles and effective practices” to 

assist firms in addressing cyber threats.59 Likewise, 

OCIE completed and published a Cybersecurity 

Examination Sweep Summary in which it revealed 

that 88 percent of broker-dealers and 74 percent 

of advisers reported “that they have experienced 

cyber-attacks directly or through one or more of 

their vendors.”60 Drawing from these findings, 

the SEC and FINRA issued several alerts and 

bulletins to raise awareness of cybersecurity risks 

and promote best practices.61 Moreover, the SEC 

settled a cybersecurity enforcement action against 

an investment adviser for the adviser’s alleged 

failure to adopt written policies and procedures 

reasonably designed to protect customer records 

and information.62 

In addition, Chair White directed SEC Staff in 

summer 2014 to form a cybersecurity working 

group.63 Throughout FY 2015, this cybersecurity 

working group assisted the SEC’s divisions and 

offices by facilitating communications within 

the agency about cybersecurity, keeping abreast 

of cybersecurity trends in the securities markets, 

providing a forum for sharing information and 

coordinating activities relating to cybersecurity, 

and serving as a resource for identifying, assessing, 

and addressing cybersecurity risks affecting 

securities markets.64 

In November 2014, the SEC finalized Reg SCI,65 

which requires certain self-regulatory organizations, 

ATSs, and other entities to implement compre

hensive policies and procedures for their techno

logical systems.66 Reg SCI is “designed to reduce 

the occurrence of systems issues, improve resiliency 

when systems problems do occur, and enhance 

the Commission’s oversight and enforcement of 

securities market technology infrastructure.”67 Reg 

SCI became effective February 3, 2015, and the 

compliance date for entities subject to Reg SCI was 

November 3, 2015.68 On September 2, 2015, the 

SEC’s Division of Trading and Markets published 

Responses to Frequently Asked Questions 

Concerning Reg SCI.69 

During FY 2015, key market participants aside 

from the SEC and SROs also have undertaken 

initiatives relating to data protection and cyberse

curity. For example, SIFMA issued 10 principles 

to facilitate the partnership between firms and 

regulators in order to “achieve their shared goals of 

protecting critical infrastructure and the assets and 

data of the public.”70 

EFFECTIVE DISCLOSURE 

During the Reporting Period, the Office advocated 

for modernization of various types of disclosure 

­

­

­

8 | OFFICE OF THE INVESTOR ADVOCATE 
 

to make disclosure more effective for the 21st 

Century investor. We encouraged the use of layered 

disclosure, structured data, and, more generally, the 

harnessing of technology to enhance the delivery 

of information. During the Reporting Period, 

the Investor Advocate delivered two speeches to 

publicize his views regarding these issues.71 

To be effective, we believe disclosure requirements need to take into account the varying needs 

of different types of users. Whenever possible, 

disclosures should be layered to make the most 

important information readily accessible and 

allow an individual investor to dig deeper for more 

information in a way that is user-friendly. At the 

same time, data should be structured in a way that 

facilitates the use of cutting-edge tools by highly 

sophisticated analysts, investment advisers, and 

other market participants. Users should be able to 

search data dynamically, establish trends through 

multiple reporting periods, and draw comparisons 

between different filers. 

While the average investor may not utilize structured data directly, millions of investors in pension 

plans and other pooled investment vehicles could 

benefit from enhanced analytical tools that may be 

utilized by asset managers. Moreover, all investors 

benefit indirectly when data is used by sophisticated 

intermediaries to expose anomalies, detect superior 

performance, or contribute to more efficient price 

discovery in the markets. 

The Commission has begun to consider the use of 

structured data in every rulemaking that includes a 

filing requirement. We have expressed our support 

for structured data in a variety of contexts, and we 

will continue to support similar initiatives. During 

the Reporting Period, the Commission’s movement 

toward structured data was borne out in several 

significant rulemakings. 

§ On March 25, 2015, the Commission adopted 

final rules to update and expand Regulation 

A, an exemption for smaller issuers from the 

securities registration requirements.72 The 

Regulation now requires that issuers file certain 

key information in an online fillable form that is 

collected in a structured format.73 

§ On April 29, 2015, the Commission voted 

to propose rules requiring companies to 

disclose the relationship between executive 

compensation and the financial performance 

of a company.74 Companies would be required 

to tag the disclosures in an interactive data 

format.75 

§ On July 1, 2015, the Commission proposed 

rules directing national securities exchanges 

and associations to establish listing standards 

requiring companies to “claw back” incentivebased compensation that was awarded 

erroneously.76 The proposal would require 

issuers to disclose information related to 

clawbacks in an interactive data format.77 

§ On August 5, 2015, the Commission adopted 

new rules to provide a comprehensive process 

for security-based swap dealers and major 

security-based swap participants to register 

with the SEC.78 The registration and other 

forms are being implemented with a graphical 

user interface that will allow users to complete 

a fillable online form, and the data will be 

collected in a structured format.79 

§ On September 22, 2015, the Commission 

proposed a new rule and amendments to 

promote effective liquidity risk management 

throughout the mutual fund industry.80 The 

proposed approach would provide the 

framework for detailed reporting and disclosure 

about the liquidity of funds’ portfolio assets in 

a structured data format.81 This builds upon 

an earlier proposal, released on May 20, 2015, 

that would modernize the investment company 

reporting requirements and utilize structured 

data.82 

During the Reporting Period, the Office also 

considered the effectiveness of new methods for 

delivering disclosures to investors. In particular, this 

issue was presented in the proposal to modernize 

REPORT ON ACTIVITIES: FISCAL YEAR 201 5 | 9
 

 

 

the investment company reporting requirements. 

Under current requirements, investment companies 

deliver lengthy semiannual reports to shareholders 

on paper unless shareholders specifically indicate 

they would prefer electronic delivery. The proposed 

rule would flip the default, allowing investment 

companies to provide the information electronically unless investors opt out by requesting paper 

documents.83 

This is an important and challenging policy choice 

because different investors have different preferences. As an initial matter, the Investor Advocate 

has voiced support for a default to electronic 

delivery, believing the Commission should generally 

be forward-looking in its rulemakings. However, 

we will review the comments that are filed in 

response to the proposed rule and continue to 

explore research involving consumer or investor 

behaviors to determine what type of delivery would 

be the most effective in conveying important, 

lengthy, and complex information. 

ELDER ABUSE 

Elder financial abuse is expected to grow i

dramatically for at least three reasons. First, our 

population is aging. About 10,000 Americans will 

celebrate their 65th birthday every day from now v

until 2030,84 and by 2040, more than one in five 

Americans will be 65 or older.85 Second, as the s

population ages, greater numbers of seniors are i

expected to suffer from diminished capacity. The 

Alzheimer’s Association estimates that the number 

of people age 65 and older with Alzheimer’s 

disease will reach 7.1 million by 2025, a 40 t

percent increase from the current number.86 Third, i

as reliance on defined benefit retirement plans t

decreases and dependence on defined contribution 

retirement plans increases,87 seniors will be left with t

greater control over the savings they accumulate 

over a lifetime of hard work. According to some 

estimates, persons 65 years and older control a i

total of $18.1 trillion in assets, including $10 e

trillion in financial assets.88 These assets will be 

very tempting targets for wrongdoers of all stripes, 

from unethical caregivers and family members to 

fraudsters and scam artists. 

When the unscrupulous carry out acts of exploitation, financial professionals often find themselves 

on the front lines. Many broker-dealers and 

investment advisers have known their clients for 

years and may be among the first to recognize signs 

of diminished capacity or financial exploitation. 

But financial professionals may feel limited in 

their ability to protect their clients. For example, 

financial professionals are expected to comply 

with their clients’ requests to withdraw or transfer 

assets, and rigid compliance with this basic rule 

would prevent a financial professional from 

blocking transactions that appear to be exploitative 

or outright scams. Financial professionals are also 

subject to privacy laws that limit their ability to 

contact a client’s family members to discuss their 

concerns. 

During the Reporting Period, the Office made it a 

priority to identify methods to help protect elderly 

nvestors from financial exploitation. In particular, 

we have looked for ways to give financial service 

professionals more effective tools to protect 

ulnerable clients. Potential solutions raise a host 

of policy questions, and the Investor Advocate 

ought to articulate a number of them in a speech 

n February 2015 at a conference on senior issues 

held at Commission headquarters.89 

Any law or regulation in this area must balance 

wo potentially conflicting goals: to respect every 

ndividual’s right to self-determination, and also 

o prevent his or her unwitting financial selfdestruction. We should remove undue restraints 

hat keep financial professionals from acting to 

protect their clients. Yet, if we confer new authority 

on broker-dealers and investment advisers to 

ntervene in clients’ accounts when they suspect 

lder exploitation, we must place appropriate limits 

on that authority. 

10 | OFFICE OF THE INVESTOR ADVOCATE 
 

The challenge is to strike the right balance. 

In grappling with these policy issues, the Office 

conferred with a number of experts in the field. 

In October 2014, the Investor Advocate and staff 

participated in the 5th Annual Summit on Elder 

Financial Exploitation, convened by the National 

Adult Protective Services Association (“NAPSA”). 

The following month, we participated in an Elder 

Investor Protection Roundtable organized by the 

Fort Worth Regional Office of the SEC. The roundtable was noteworthy for bringing together the full 

panoply of organizations that must work together 

to prevent elder abuse: federal, state and local 

officials representing regulators, prosecutors, and 

the Department of Health and Human Services; 

broker-dealers and other financial professionals; 

and leaders of local not-for-profit organizations. 

On June 15, 2015, the Investor Advocate and 

staff attended the First Global Summit on the 10th 

Anniversary of World Elder Abuse Awareness Day, 

held at Commission headquarters. The following 

month, we met with NAPSA officials to learn 

about the challenges adult protective services 

(“APS”) workers face while investigating and 

resolving reports of elder financial exploitation.90 

In addition, we have conferred regularly with 

colleagues in other SEC divisions and offices to 

encourage a coordinated approach to the challenges 

of elder exploitation. 

At the end of the Reporting Period, two significant 

developments took place: FINRA and the North 

American Securities Administrators Association 

(“NASAA”) separately announced new proposals 

to combat elder financial exploitation. The 

proposals come against a backdrop in which a few 

states have adopted laws allowing financial firms 

to delay disbursements when elder exploitation is 

suspected.91 

On September 17, 2015, FINRA announced that 

its Board of Governors had approved a rulemaking 

item to help firms better protect seniors and other 

vulnerable adults from financial exploitation.92 The 

proposal would allow a firm to place a temporary 

hold on a disbursement of funds or securities and 

notify a customer’s trusted contact when the firm 

has a reasonable belief that financial exploitation 

is occurring. Shortly after this Reporting Period 

ended, FINRA released the proposal for public 

comment. 93 

On September 29, 2015, NASAA announced that 

its Board of Directors had approved for public 

comment a proposed Model Act to address issues 

faced by broker-dealer and investment adviser 

firms and their employees when confronted with 

suspected financial exploitation of seniors and 

other vulnerable adults.94 The proposed Model 

Act would provide broker-dealers and investment 

advisers with the authority to delay disbursement 

of funds from an eligible adult’s account if the 

broker-dealer or investment adviser reasonably 

believes that such disbursement will result in the 

financial exploitation of the eligible adult. 

Mandatory reporting constitutes a key element 

of the proposed Model Act. If a broker-dealer or 

investment adviser delays a disbursement, it must 

notify persons authorized to transact business on 

the account (unless such persons are suspected of 

the financial exploitation), notify the state securities 

commissioner and APS, and undertake an internal 

review of the suspected exploitation.95 The model 

legislation also would provide immunity from 

administrative or civil liability for broker-dealers 

and investment advisers for engaging in protective 

actions permitted under the act.96 

During the next reporting period, the Office will 

follow the progress of the NASAA and FINRA 

proposals closely and comment as appropriate. 

In addition, we will examine what else remains to 

be done at the federal level to protect seniors and 

other vulnerable adults from financial exploitation. 

As an initial observation, we would underscore the 

importance of reporting suspected exploitation to 

APS. This is a local agency that shoulders responREPORT ON ACTIVITIES: FISCAL YEAR 201 5 | 11
 

 

sibility for investigating reports of suspected elder 

abuse of all kinds, including financial exploitation, 

and taking swift and effective actions to protect 

seniors from abuse. The Investor Advocate believes 

that financial firms should have the ability to pause 

disbursements of funds, contrary to the explicit 

instructions of a customer, if there is a reasonable 

belief that financial exploitation is occurring. 

However, if the suspicion is strong enough to 

warrant a pause on a disbursement, it also should 

trigger an obligation to report the suspicious 

activity to APS. 

For this reporting mechanism to be effective, it 

is necessary for APS to have adequate resources 

to do the job. Sadly, those resources appear to be 

lacking,97 but this is an area in which Congress 

can make a real impact in the lives of vulnerable 

seniors. Although Congress authorized $125 

million for this purpose when it passed the Elder 

Justice Act in 2010, the first actual appropriation 

came in 2015 and amounted to $4 million.98 

Additional funding would go a long way toward 

helping APS address the financial exploitation 

of seniors, a problem that likely will grow in the 

coming years. 

12 | OFFICE OF THE INVESTOR ADVOCATE 
 

MOST PROBLEMATIC INVESTMENT
 

PRODUCTS AND PRACTICES
 

Among the statutory duties of the Investor 

Advocate enumerated in Exchange Act 

Section 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.99 

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, 

NASAA, and FINRA during FY 2015; 

§ SEC enforcement actions and FINRA 

disciplinary actions during the Reporting Period; 

§ The 2015 NASAA Enforcement Report;100 

§ An October 30, 2015, letter from Lynnette 

Kelly, Executive Director, MSRB, highlighting 

municipal market practices that may have an 

adverse impact on retail investors;101 and 

§ SEC and SRO staff reports providing guidance 

and interpretations relating to investment 

products. 

The table below lists certain problematic products 

or practices during FY 2015 as reported by the 

SEC102 NASAA103 FINRA104 MSRB105 

§ Penny Stocks of 

Dormant Companies 

§ Internet Fraud, Including 

Social Media Investment 

Schemes & Fantasy 

Trading Websites 

§ Automated Investment 

Tools 

§ Broker-Dealer Controls 

Regarding Customer 

Sales of Microcaps & 

Structured Securities 

§ Miscellaneous Broker 

Fees 

§ Pump and Dump 

Schemes 

§ Non-traded REITs 

§ Options 

§ Cybersecurity 

§ Pyramid and other 

Ponzi Schemes 

§ Regulation D/Rule 506 

Private Offerings 

§ Real Estate Schemes, 

Including Those Using 

Promissory Notes 

§ Internet Fraud, Including 

Social Media and 

Crowdfunding 

§ Oil & Gas Investments in 

the Fracking Era 

§ Affinity Fraud 

§ Marijuana Industry 

Investments 

§ Stream of Income 

Investments 

§ Binary Options 

§ Digital Currency and 

Cybersecurity 

§ Penny Stocks of 

Dormant Companies 

§ Messaging Applications 

& Pump and Dump 

Scams 

§ Automated Investment 

Tools 

§ Advance Fee Scams 

§ Brokerage Account 

Asset Transfers at Death 

§ Bond Liquidity 

§ High Pressure Sales 

Tactics and Aggressive 

Promotions in Physical 

Precious Metal, 

E-Cigarette, and 

Vaporizer Markets 

§ Cybersecurity 

§ Timeliness of 

Continuing Disclosures 

§ Lack of Bank 

Loan Disclosures 

§ Trades Below Minimum 

Denomination 

§ Time of Trade 

Disclosures 

§ Price Transparency 

REPORT ON ACTIVITIES: FISCAL YEAR 201 5 | 13
 

SEC, NASAA, FINRA, and the MSRB. 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, this Report 

on Activities identifies three products or practices 

that we wish to highlight: (1) exchange traded 

products (including related structural concerns); 

(2) municipal market disclosure practices; and 

(3) master limited partnerships. 

EXCHANGE TRADED PRODUCTS 

Exchange-traded products (“ETPs”) constitute 

a diverse class of financial products that seek 

to provide investors with exposure to financial 

instruments, financial benchmarks, or investment 

strategies across a wide range of asset classes. ETP 

trading occurs on national securities exchanges 

and other secondary markets,106 making ETPs 

widely available to individual investors as well as 

institutional investors such as hedge funds and 

pension funds.107 

The Commission approved the listing and trading 

of shares of the first ETP—the SPDR S&P 500 ETF 

(“SPY” or “Spider”)—in 1992.108 Since then, there 

has been enormous growth in this market. From 

2006 to 2013, the total number of ETPs listed and 

traded rose by an average of 160 per year.109 The 

total market capitalization of ETPs also has grown 

substantially, nearly doubling since the end of 

2009. Much of this growth has been in index-based 

ETPs.110 As of December 31, 2014, there were 

1,664 U.S.-listed ETPs with a market capitalization 

of over $2 trillion.111 

There also has been significant growth in the 

range of investment strategies that ETPs pursue. 

These strategies have expanded from exchangetraded funds (“ETFs”) that track equity indices 

(such as the original SPY) to include, among other 

things: (i) ETPs that track other types of indices 

(such as those based on fixed-income securities 

or on derivatives contracts on commodities and 

currencies); (ii) actively managed ETPs that hold 

portfolios of equities, fixed-income instruments, 

foreign securities, commodities, currencies, futures, 

options, or other over-the-counter or exchangetraded derivatives; (iii) leveraged, inverse, and 

inverse leveraged ETPs; and (iv) ETPs employing 

market volatility, hedging, or options-based 

strategies.112 

Although ETPs constitute a diverse class of 

financial products, they are often classified into 

three broad categories. 

Exchange-Traded Funds. The first, and largest, 

category comprises ETFs, which are funds or 

trusts registered as investment companies under 

the Investment Company Act of 1940 (“1940 

Act”).113 Like a mutual fund, an ETF pools the 

assets of multiple investors and invests according 

to its stated investment objective, and each share 

of an ETF represents an undivided interest in the 

underlying assets. However, unlike mutual funds 

whose shares are bought or sold at the fund’s 

current net asset value calculated typically only at 

the end of the day, ETF shares may be bought or 

sold throughout the day through a broker-dealer at 

a fluctuating price.114 

Non-1940 Act Pooled Investment Vehicles. The 

second category comprises ETPs that, generally, are 

trusts or partnerships that are not registered under 

the 1940 Act because they do not invest primarily 

in securities.115 Examples include those that physically hold a precious metal or that hold a portfolio 

of futures contracts on commodities. Offerings of 

securities issued by these ETPs are registered only 

under the Securities Act of 1933 (“Securities Act”). 

14 | OFFICE OF THE INVESTOR ADVOCATE 
 

 

Exchange-Traded Notes (“ETNs”). The third 

category, ETNs, are senior debt instruments 

issued by banks, and they pay a return based on 

the performance of a “reference asset” such as a 

market benchmark like the return on the S&P 500 

Index.116 Unlike the other two categories of ETPs, 

ETNs are not pooled at all like mutual funds, 

and they do not hold an underlying portfolio of 

securities or other assets. ETNs are registered under 

the Securities Act, and the performance of the referenced asset generally determines what the issuer of 

the ETN must pay to the investor at maturity of 

the note. 

Certain ETPs can be relatively easy to understand. 

Other ETPs may have unusual investment objectives or use complex investment strategies that 

may be more difficult to understand and fit into 

an investor’s investment portfolio.117 For example, 

leveraged ETFs seek to achieve performance equal 

to a multiple of an index after fees and expenses. 

These ETFs seek to achieve their investment 

objective on a daily basis only, potentially making 

them unsuitable for long-term investors. In 

addition, the Commission has observed that the 

secondary market price of an ETN can substantially deviate from its reference assets when the 

issuer of that ETN suspends issuances, which has 

occurred on occasion.118 

In June 2015, the Commission issued a release 

seeking public comment to help inform its review 

of the listing and trading of new, novel and 

complex ETPs.119 The Commission also solicited 

comment regarding the ways in which brokerdealers market these products, especially to retail 

investors.120 Finally, the Commission sought 

comment on investor understanding of the nature 

and uses of ETPs, particularly by retail investors. 

To date, the Commission has received over 35 

comments on ETPs from individuals, industry trade 

groups, academics, and other interested parties.121 

On the morning of August 24, 2015, the price 

of dozens of equity ETFs dropped below the 

values of the indices they were designed to track, 

and the ETFs experienced a number of trading 

halts.122 Chair White has noted that the Division 

of Economic and Risk Analysis (“DERA”) and the 

Division of Trading and Markets are evaluating a 

great deal of information from that day’s trading 

activity.123 From its initial analysis, DERA has 

observed 1,278 trading halts on August 24th (as 

compared to 40 on an average day) and found 

that more than 80 percent of the halts involved 

ETPs, with many of those ETPs trading well below 

their presumed value at the time.124 Preliminarily, 

the data suggests there was a large pull-back 

in liquidity for ETPs as the markets opened for 

trading. Furthermore, the problems were not 

restricted to small ETFs, as the typically larger and 

liquid ETFs were more likely to be halted.125 

In a recent speech, SEC Commissioner Luis 

Aguilar noted that the apparent fragility of ETFs 

during the opening of trading raises questions and 

suggests it may be time to reexamine the entire 

ETF ecosystem.126 For example, it may be appropriate to consider whether liquidity providers for 

ETFs need more effective incentives to participate 

during periods of extreme volatility, and whether 

the growth of ETFs and their proliferation into less 

liquid asset classes has challenged the effectiveness 

of the existing ETF arbitrage and pricing mechanisms.127 Chair White has encouraged Commission 

staff to examine whether the behavior of ETPs on 

that day can be explained by uncertainty in pricing, 

by the demand and supply for ETPs, or by the low 

trading volume.128 

It is too early to offer meaningful recommendations to address the problems that were exposed on 

August 24th. Our Office will continue to evaluate 

the underlying causes for the market disruption, 

monitor developments, and offer our recommendations at the appropriate time. 

REPORT ON ACTIVITIES: FISCAL YEAR 201 5 | 15
 

 

MUNICIPAL MARKET DISCLOSURE 

PRACTICES 

As of the end of the second quarter of 2015, 

individual investors held directly approximately 42 

percent of municipal securities. Another 28 percent 

were owned indirectly by retail investors through 

mutual funds, money market funds, or closed end 

funds and exchange-traded funds.129 The preva

lence of municipal securities in the portfolios of 

individual investors makes investor protection in 

municipal securities markets imperative. Recently, 

the MSRB highlighted “three areas of particular 

concern given their potential adverse effect on 

retail investors” and identified two additional areas 

that continue to be monitored for potential risks 

to retail investors.130 Each of these areas is briefly 

discussed below. 

Timeliness of Continuing Disclosures. Municipal 

securities issuers are falling short in providing 

investors with timely disclosures of valuable infor

mation.131 According to the MSRB’s May 2015 

report, Timing of Annual Financial Disclosures by 

Issuers of Municipal Securities, between 2010 and 

2014 audited financial statements were submitted 

to the Electronic Municipal Market Access 

(“EMMA”) system,132 on average, between 199 

and 203 days after the end of the applicable fiscal 

year.133 Other financial information was submitted 

on average between 186 and 189 days after the end 

of the applicable fiscal year.134 This lag between 

the end of a fiscal year and the disclosure of annual 

financial information by issuers likely diminishes 

the information’s usefulness and relevance to retail 

investors trying to assess the current financial 

position and health of a municipal issuer.135 

Lack of Bank Loan Disclosures. Bank loans, 

direct-purchase debt, and privately placed debt are 

increasing in popularity as an alternative financing 

option to a public debt offering.136 According to 

data published by the Federal Deposit Insurance 

Corporation, the issuance of bank loans to state 

and local government increased by approximately 

$95.6 billion from fourth quarter 2012 to fourth 

­

­

quarter 2014.137 For an investor in municipal 

securities, the level of a municipality’s debt-like 

obligations can be an important factor in an 

investment decision because the loans can impact 

the issuer’s credit profile or distort valuation of the 

issuer’s bonds. However, these debt-like obligations 

are rarely disclosed138 because they may not trigger 

disclosure obligations under existing rules.139 

Trades Below the Minimum Denomination. During 

a municipal bond offering, issuers prescribe the 

minimum denomination, which is the lowest 

dollar amount of bonds to be sold by a dealer to 

an investor in a single transaction. Typically, the 

minimum denomination is $5,000, but some issuers 

may impose a higher minimum, most commonly in 

the amount of $100,000.140 An issuer may set high 

minimum denominations because it perceives that 

the municipal bond may be inappropriate—due 

to risk of default, lack of publicly disseminated 

disclosure, or other concerns—for retail investors 

who are likely to purchase in dollar amounts below 

the minimum denomination.141 By setting a higher 

minimum denomination, issuers may help ensure 

that high risk bonds are sold only to investors able 

to make larger investments and bear the associated 

risk.142 Toward that end, the MSRB implemented 

MSRB Rule G-15, which prohibits municipal 

bond dealers from effecting customer transactions 

in a dollar amount below the minimum denomination, subject to certain exceptions.143 However, 

the MSRB has grown concerned that certain 

dealers have inappropriately transacted below the 

minimum denomination.144 

Time of Trade Disclosures. Under MSRB Rule 

G-47, dealers cannot sell municipal securities to a 

customer or purchase municipal securities from a 

customer without disclosing to the customer, at or 

prior to the time-of-trade, all material information 

known about the transaction and material information about the security that is reasonably accessible to the market.145 The failure of a dealer to 

disclose all material information poses a significant 

risk because retail investors may act on incomplete 

16 | OFFICE OF THE INVESTOR ADVOCATE 
 

information, execute unsuitable transactions, 

or pay unreasonable prices for transactions.146 

According to the MSRB, the magnitude of this 

type of dealer misconduct is difficult to measure, 

but inadequate disclosure is an area of increasing 

concern.147 

Price Transparency. Currently, customer confirmations are not required to include information about 

the cost of a security to the firm. For individual 

investors to determine that cost and compare it 

to the price they paid for the security, they must 

navigate through publicly available information 

on EMMA and identify prices in corresponding 

transactions.148 Thus, to help ensure fair and 

reasonable pricing, there is a need for increased 

price transparency. With better price transparency, 

retail investors will be better equipped to evaluate 

transaction costs and the quality of service provided 

to them by brokers.149 

Some steps have been taken to address each of the 

areas identified above. The MSRB has made efforts 

to promote more timely disclosure and to improve 

disclosure practices through market outreach 

and the development of tools and resources that 

promote more timely disclosure, such as a free 

automated email reminder service alerting issuers to 

periodic financial disclosure requirements.150 The 

MSRB also has repeatedly called upon municipal 

market participants to urge issuers to disclose bank 

loans and other debt-like obligations on EMMA.151 

Through its rulemaking process, the MSRB has 

sought to ensure suitability and fair pricing obliga

tions are met.152 Its price transparency initiatives, 

including its recent best execution requirement and 

additions to post-trade data on EMMA, seek to 

ensure fair pricing and transparency in municipal 

securities markets.153 

As discussed in greater detail in the section above 

entitled Municipal Market Reform, the Office 

of the Investor Advocate has spent considerable 

time in FY 2015 advocating for the protection of 

investors in municipal securities markets. In Fiscal 

Year 2016, the Office will continue to monitor 

developments and encourage reforms that benefit 

investors. 

MASTER LIMITED PARTNERSHIPS 

Master limited partnerships (“MLPs”) have 

attracted media coverage recently, partly as a 

result of their steep price declines after years of 

prosperity.154 Media reports typically point to the 

large drop in crude oil prices as a significant reason 

for the selloff in MLP shares.155 Although once the 

­

REPORT ON ACTIVITIES: FISCAL YEAR 201 5 | 17
 

 

 

most popular energy-related investments of the past 

decade, MLPs have become a scorned investment 

vehicle in a matter of months. Indeed, as their 

prices have fallen even further than the crude oil 

on which many MLPs depend, the popularity 

of MLPs has plummeted.156 Because the typical 

MLP investor tends to be an individual who holds 

securities for the long-term,157 the recent volatility 

in MLP prices directly impacts the individual 

investor. According to the MLP Association, most 

MLP investors are individuals who invest in MLPs 

either directly or through MLP funds, and a large 

proportion of those investors are seniors who rely 

on MLPs to help fund their retirement.158 

Generally, MLPs have been a popular investment 

choice because of their high yields, unique 

structure, and tax advantages.159 An MLP is a 

limited partnership whose limited partnership 

interests are publicly traded—in other words, an 

MLP is a publicly traded limited partnership.160 

The limited partnership interests, usually referred to 

as “common units,” are analogous to the common 

stock of an issuer.161 Despite being publicly traded, 

however, MLPs are classified as partnerships for 

federal income tax purposes.162 

As a result, an MLP captures the tax advantages 

of a partnership at the federal and state levels 

while maintaining the liquidity of a publicly traded 

stock.163 This confers significant tax advantages 

on MLPs as compared to companies organized 

as publicly traded corporations.164 Because MLPs 

are “pass-through” entities—meaning that income 

passes through to the owners of the MLP—they are 

not subject to corporate income taxes.165 Rather, 

the owners of the MLP are personally responsible 

for the payment of income taxes on their individual 

portion of the MLP’s income, gains, losses, and 

deductions. 166 

The unique structure of MLPs is due mainly to the 

Revenue Act of 1987, which exempted from entitylevel taxation any publicly traded partnership in 

which at least 90 percent of its gross income is 

classified as “qualifying income.”167 Generally, 

qualifying income includes, among other things, 

income and gains derived from the exploration, 

development, mining or production, processing, 

refining, transportation (including pipelines 

transporting gas, oil, or products thereof), or the 

marketing of any mineral or natural resource 

(including fertilizer, geothermal energy, and 

timber).168 Real property rents, income, and gains 

also can be considered qualifying income under 

certain circumstances.169 Nonetheless, most MLPs 

are clustered in the energy sector, particularly in the 

pipeline or energy storage industries, which 

provide a stable source of income derived from 

the transport and storage of oil, gasoline, and 

natural gas.170 According to the MLP Association, 

total MLP market capital is approximately 

$481 billion, of which 82 percent (approximately 

$393 billion) is attributable to energy and natural 

resource MLPs.171 

A significant disadvantage of the concentration 

of MLPs in the energy sector is that they can be 

acutely sensitive to shifts in oil prices—even those 

MLPs unrelated to the oil and gas industry.172 MLP 

investors reportedly have lost approximately $20 

billion in publicly traded drilling partnerships 

alone in the past year.173 The Alerian MLP Index, 

a benchmark gauge of energy MLPs (whose 50 

constituents represent approximately 75 percent 

of total market capitalization), had declined by 

over 30 percent year-to-date as of September 30, 

2015, and was down nearly 40 percent in the 

one-year period ending on that date.174 Investors 

who hold MLPs indirectly in the form of ETPs 

may be impacted by the uncertainty of interest rate 

movements and commodity prices as well.175 In 

addition, the MLP space has consolidated over 

the past couple of years, resulting in the removal 

of certain MLPs from MLP indexes.176 In other 

words, MLP prices can be extremely volatile, and 

many investors have experienced the downside of 

this volatility in the past year. 

18 | OFFICE OF THE INVESTOR ADVOCATE 
 

Other potential risks of investing in MLPs include, 

among other things, partnership tax consequences, 

governance and standards of care that may be 

more favorable to the MLP sponsor than to the 

investor, and conflicts of interest.177 For example, 

each owner—or limited partner—of an MLP 

receives an annual Schedule K-1 which itemizes 

the limited partner’s share of the MLP’s income, 

gains, losses, and deductions. 178 An MLP investor 

is responsible for paying all applicable federal, 

state, and local income taxes even if the MLP does 

not make any cash distributions to the investor.179 

In addition, the sponsor who set up the MLP 

(usually a public company that contributes assets 

to the MLP) typically controls the MLP through 

its general partner and board of directors and can 

opt to exercise a lower standard of care than the 

fiduciary standard corporations generally owe to 

their shareholders under state law.180 Moreover, the 

sponsor’s relationship with the MLP and its general 

partner can create conflicts of interest that can be 

disadvantageous to investors who are only limited 

partners in the MLP.181 

Depending on the circumstances, MLPs 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, however, that an investor’s 

reach for yield can have negative consequences, 

as evidenced by the steep declines in MLP prices 

and corresponding heavy losses for MLP investors 

over the past year. The recent performance of 

these products underscores the types of risks that 

investors are increasingly assuming in a marketplace rife with more and more complex products. 

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 

MLPs and their risks before deciding to invest in 

them. This is particularly important in the case of 

MLPs because so many of them have concentrated 

exposure to a single industry or commodity, in 

addition to other risks. As with any investment, 

investors should not invest in something that they 

do not understand. 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 MLPs. 

REPORT ON ACTIVITIES: FISCAL YEAR 201 5 | 19
20 | OFFICE OF THE INVESTOR ADVOCATE 
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 

(“SROs”); (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.182 On August 

26, 2014, the Investor Advocate, in consultation 

with Chair White, appointed Tracey L. McNeil as 

Ombudsman. She formally began her duties on 

September 22, 2014. 

Exchange Act Section 4(g)(8)(D) requires the 

Ombudsman 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.183 In turn, these reports 

must be included in the semi-annual reports 

that are submitted by the Investor Advocate to 

Congress.184 Accordingly, we submit this report 

describing the Ombudsman’s activities from 

October 1, 2014 to September 30, 2015 

(“FY 2015”). 

During FY 2015, the Ombudsman185 focused 

largely on establishing processes to handle inquiries 

from retail investors. In addition to the foundational activities listed in the previous semi-annual 

Ombudsman’s Report included in the Report on 

Objectives for Fiscal Year 2016,186 the Ombudsman 

continued the operational process of establishing 

the foundational systems necessary to support the 

ombudsman function, including: 

§ Hiring a full-time 

attorney with 

experience 

addressing investor 

inquiries to increase 

response capacity 

and facilitate 

effective outcomes; 

§ Engaging a contract 

attorney with 

significant financial 

regulatory experience 

to support more 

comprehensive 

analysis of SRO regulatory policies and
 

procedures;
 

§ Establishing confidential email, telephone, 

facsimile, and file storage with appropriate 

protections to secure data and limit access; 

§ Refining internal policies and procedures, and 

establishing internal protocols for handling 

inquiries in a confidential manner; and 

§ Working directly with the SEC’s Office of 

Information Technology (“OIT”) and a 

technology contractor to create an integrated 

electronic platform for inquiry management, 

data collection, reporting, and recordkeeping 

available only to the Ombudsman and 

authorized staff. 

REPORT ON ACTIVITIES: FISCAL YEAR 201 5 | 21
 

The Ombudsman is required to review and make 

recommendations for policies and procedures 

to encourage persons to present questions to the 

Investor Advocate regarding compliance with the 

securities laws. The establishment of the role, the 

Ombudsman’s ability to handle inquiries on a 

confidential basis, and the Ombudsman’s access 

to appropriate SEC staff across the agency should 

encourage persons to present questions to both 

the Ombudsman and the Investor Advocate. 

To achieve this objective, the Ombudsman has 

adopted a two-pronged approach using personal 

outreach and electronic media to raise awareness of 

this service and encourage public engagement. 

With the addition of new staff and increased 

Ombudsman personnel resources, the Ombudsman 

has connected with the greater ombudsman 

community, including ombudsmen in other 

government agencies and the financial services 

industry, by participating in various industryspecific and practice-focused trainings and confer

ences during FY 2015. Through these events, the 

Ombudsman’s presence and participation has 

forged relationships with other financial industry 

neutrals positioned to guide investors and others 

to the services of the SEC’s Ombudsman when 

appropriate. 

The Ombudsman also launched the new 

Ombudsman webpage accessible through the 

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

The new webpage is designed to be user-friendly, 

explain the nature of the Ombudsman’s liaison 

function, clarify the types of assistance the 

Ombudsman can provide, encourage individuals 

to bring concerns for the Investor Advocate’s 

consideration, and highlight the safeguards 

protecting confidentiality of communications with 

the Ombudsman. 

STANDARDS OF PRACTICE 

Any retail investor with an issue or concern 

related to the SEC or to a self-regulatory organi

zation 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 

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. 

Impartiality 

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 promote a fair process. 

Independence 

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. 

22 | OFFICE OF THE INVESTOR ADVOCATE 
OMBUDSMAN MATTER 

MANAGEMENT SYSTEM 

The Ombudsman continued working closely 

with OIT throughout FY 2015 to develop 

the Ombudsman Matter Management 

System (“OMMS”), a platform for collecting, 

recording, and tracking matters received by the 

Ombudsman—including inquiries, complaints, 

requests, and recommendations—while ensuring 

necessary data management, confidentiality, and 

reporting requirements are met. The development 

acquisition process began during the second 

quarter of FY 2015, and a technology contractor 

was selected and engaged during the third quarter 

of FY 2015. 

With the assistance of OIT, the Ombudsman 

continues to meet with the contractor to refine the 

data parameters and functionality requirements 

for the completed system. To ensure successful 

operation and full compliance with SEC and OIT 

development, security, and privacy guidelines and 

standards, the Ombudsman and approved staff 

will engage in software testing throughout the first 

and second quarters of FY 2016. The Ombudsman 

plans to begin phasing out the existing manual data 

collection system during FY 2016 and anticipates 

full reliance on the new, customer-facing, data 

management platform no later than FY 2017. 

When OMMS is fully operational, the 

Ombudsman and approved staff will have the 

ability to review investor inquiries and complaints, 

including communication, handling, and resolution 

histories, within a fully secure, confidential 

electronic system. Over time, OMMS should 

enhance operational efficiency on multiple levels. 

It will provide appropriate staff with the ability to 

input and access all correspondence and related 

supplemental documents relevant to a particular 

individual or entity through an automated, unified 

system indexed for complex research capacity. 

With these features, OMMS will increase the 

depth and breadth of resources available for staff 

review, reduce corresponding staff research and 

response time, and increase the security of personal 

information related to the individual inquiries, 

complaints, and concerns the Ombudsman handles. 

The OMMS data collection, analysis, and reporting 

features also will allow for more comprehensive 

data analysis, thereby supporting the Ombuds

man’s recommendations to the Investor Advocate 

with fuller, data-driven metrics. 

Further, the OMMS external interface will include 

a secure communication system permitting the 

submission of electronic inquiries and complaints 

directly to the Ombudsman through a web portal 

system accessible via the www.sec.gov webpage. 

As with the dedicated Ombudsman telephone 

number and email address already in place, this 

web-based communication platform will ensure 

the confidentiality of communications between 

the Ombudsman and the public. This OMMS 

feature will encourage further public inquiry simply 

because such technology has become a commonly 

used, well-recognized, online tool for communi

cating inquiries and complaints. 

OMBUDSMAN SERVICE BY THE 

NUMBERS — FY 2015 

The Ombudsman assists retail investors and other 

individuals in a variety of ways, including, but not 

limited to: 

§ Helping persons explore available SEC options 

and resources; 

§ Listening to inquiries, concerns, complaints, 

and related issues; 

§ Clarifying certain SEC decisions, policies, and 

practices; 

§ Taking objective measures to resolve informally 

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. 

­

­

REPORT ON ACTIVITIES: FISCAL YEAR 201 5 | 23
SEC Waiver Granting Process (153)

Securities Ownership and Account Mismanagement (114)

Potential Commission Appointees (98)

Filing and Status of Complaints (61)

Inadequacy of SEC Rules for Certain Securities Transactions (23)

Allegations of Securities Law Violations or Fraud (15)

Concerns about SRO Rules and Procedures (11)

Impact of SEC Enforcement Actions on Share Values (8)

Contacting SEC Staff (7)

Non-SEC Disputes (6)

Public Company Disclosure (3)

30.7%

8%

 

 

During FY 2015, the Ombudsman fielded 727 

contacts from retail investors, attorneys, industry 

professionals, students, prospective government 

service contractors, SEC staff, and other 

individuals. Every contact—including phone calls, 

emails, voicemails, and other correspondence—was 

individually reviewed by the Ombudsman in an 

impartial and confidential manner, as discussed 

under the Standards of Practice. Of these 727 

contacts, 499 represent initial matters where the 

Ombudsman was contacted to address a discrete 

question or concern. Of these initial matters, 228 

generated follow-on contacts which required 

additional resources and information—including 

research, meetings, and correspondence between 

the Ombudsman, SEC staff, SRO staff, and/or 

investors and individuals—to address subsequent 

requests, questions, or concerns. 

The 499 initial matters fell into 11 primary 

categories: 

30.7%

22.8%

19.6%

12.2%

4.6%

3.0%

2.2%

1.6%

1.4% 1.2%

0.6%

SEC Waiver Granting Process (153) 

Securities Ownership and Account Mismanagement (114) 

Potential Commission Appointees (98) 

Filing and Status of Complaints (61) 

Inadequacy of SEC Rules for Certain Securities Transactions (23

Allegations of Securities Law Violations or Fraud (15) 

Concerns about SRO Rules and Procedures (11) 

Impact of SEC Enforcement Actions on Share Values (8) 

Contacting SEC Staff (7) 

Non-SEC Disputes (6) 

Public Company Disclosure (3) 

) 

OMBUDSMAN SERVICE BEHIND THE 

NUMBERS—RESTORING INVESTOR 

CONFIDENCE, RETHINKING 

PROCEDURES, AND CREATING 

A FORUM FOR DISCUSSION AND 

RECOMMENDATIONS 

Although instructive, the numbers alone are insufficient to reflect an accurate picture of the Ombudsman’s activities. The numbers provide information 

about the range of investor concerns we addressed, 

but they do not offer a meaningful picture of the 

obstacles faced by investors who came to us or 

how the Ombudsman’s role provided alternative 

solutions to those obstacles. For a more valuable 

understanding of the Ombudsman’s undertakings, 

the following sections describe a few of the 

matters the Ombudsman received, how they were 

addressed, and the basis for the resolution method 

employed. These sections also highlight the scope 

of considerations influencing the Ombudsman’s 

responses based on the particular investor and the 

specific context involved. 

Restoring Investor Confidence 

The Ombudsman received a substantial number 

of calls generated by two strategic, scripted call 

campaigns during the fourth quarter of FY 2015. 

The Ombudsman received 98 calls from individuals 

expressing opposition to certain potential nominees 

for Commission vacancies, and 153 calls from 

individuals objecting to Commission waivers 

granted to entities otherwise disqualified from 

submitting SEC filings as “well-known seasoned 

issuers,” or WKSIs.187 Each call campaign was 

conducted during a very short window of time, 

and resulted in a high volume of calls received 

over a period of a few days. In addition to each 

caller using similar, seemingly scripted language, a 

number of callers individually requested to speak 

with a member of the Commission staff about 

their concerns. Several callers also expressed 

significant frustration, identified the Commission as 

non-responsive to investors’ concerns, and asserted 

24 | OFFICE OF THE INVESTOR ADVOCATE 
that this perception was justified when the call was 

answered by voicemail rather than a live person. 

The Ombudsman reviewed each of the 251 

voicemail messages, noted each caller’s name and 

contact information when provided, and informed 

the Investor Advocate and staff in the Chair’s 

Office of the nature and volume of calls. In determining a procedure to handle the call campaigns, 

the Ombudsman considered both the callers’ stated 

and implied concerns. Ultimately, every caller 

who requested a return call received a personal 

call from the Ombudsman, and the Ombudsman 

took the time to listen to the concerns of each 

person she reached. When helpful or requested, the 

Ombudsman provided the caller with additional 

information on how Commission vacancies are 

filled and how waiver requests are granted. The 

decision by the Ombudsman to engage directly 

with these individual callers addressed their stated 

concerns while also correcting mistaken public 

assumptions about the priority the Commission 

places on individual investors. 

This theme—restoring investor confidence through 

personal interaction with the Ombudsman—has 

been a recurring one for which there is no one-sizefits-all solution. For example, an elderly investor 

contacted the Ombudsman for assistance with 

the SEC complaint process to address a disputed 

brokerage account transaction. The investor was 

particularly daunted by technology and found it 

difficult to navigate the SEC website. The investor 

also was intimidated by his perceived lack of power 

in a dispute with a large, international brokerage. 

The Ombudsman assisted the investor and 

explained the SEC complaint process; however, the 

investor routinely called the Ombudsman to discuss 

his complaint, and also to request the same information provided to him previously. Realizing that 

the investor’s ill health was complicating efforts 

to provide assistance, the Ombudsman crafted a 

personalized, multi-step strategy to address the 

investor’s concerns and get his complaint filed. 

When last contacted to follow up, the investor 

expressed his gratitude to the Ombudsman and 

the SEC for providing the guidance, resources, and 

support necessary to file a complaint to help him 

protect his life savings. 

In another particularly challenging and compelling 

matter, a caller contacted the Ombudsman 

complaining that an SEC staff member spoke 

impolitely to his elderly father who was hospitalized and unable to appear for scheduled 

testimony that same afternoon. The caller lived in 

a different state from his father, did not know the 

name of SEC staff with whom his father spoke, 

and had no information about the nature of the 

testimony, the entity, or the security that might be 

involved. With the limited information provided, 

the Ombudsman conducted research and contacted 

the appropriate SEC senior staff directly to discuss 

the matter, facilitating a rapid resolution to the 

caller’s concerns. Acting as a liaison and leveraging 

the ability to address investor concerns through 

informal channels, the Ombudsman was able to 

demonstrate the Commission’s commitment to the 

protection of individual investors and support the 

agency’s enforcement efforts. 

Rethinking Procedures 

While the number of retail investor complaints 

specifically addressing conflicts with SROs has 

been relatively small, the Ombudsman’s treatment 

of those complaints reflects their significance and 

demonstrates the Ombudsman’s unique role in 

raising issues for the consideration of the Investor 

Advocate and in contributing to the protection of 

investors. Several investors raised concerns about 

their experiences with the FINRA arbitration 

process, and the Ombudsman noted the intent 

to focus on these concerns in the Ombudsman’s 

Report included in the Report on Objectives for 

FY 2016.188 The discussion that follows highlights 

broad areas of concern raised by investors that 

relate to the fairness and effectiveness of securities 

arbitration: noncompliance with discovery rules, 

REPORT ON ACTIVITIES: FISCAL YEAR 201 5 | 25
 

 

unprofessional and unethical conduct, arbitrator 

neutrality, and mandatory pre-dispute arbitration. 

During FY 2015, several investors complained 

to the Ombudsman that firms withheld material 

documents subject to automatic disclosure, introduced fabricated documents into the record, and 

misrepresented facts and substantive securities law 

to FINRA arbitrators. Moreover, these investors 

complained about delays during the expedited 

arbitration process, failure to follow procedural 

rules, and otherwise unprofessional and unethical 

conduct during arbitration hearings. Concerns 

about noncompliance with securities arbitration 

discovery rules have existed for some time. In 

2003, for example, the National Association of 

Securities Dealers (“NASD”), which consolidated 

member firm regulatory functions with NYSE to 

form FINRA in 2007,189 issued a notice to remind 

members of their duty to cooperate during the 

arbitration discovery process.190 Furthermore, 

this notice highlighted sanctions that may be 

imposed against parties who violated this duty, 

and mentioned the responsibility of claimants and 

their representatives to follow discovery rules and 

procedures as well.191 Unprofessional and unethical 

conduct may be best addressed through training192 

and other corrective measures; however, efforts 

to address the broad scope of investor complaints 

about noncompliance with discovery rules and 

unprofessional and unethical conduct may extend 

into other aspects of the FINRA arbitration process. 

In addition, investors expressed concerns relating 

to arbitrator neutrality and raised complaints 

about arbitrators with undisclosed conflicts 

of interest and pro-industry biases. A FINRA 

arbitrator, whether classified as a public arbitrator 

(one with no securities industry experience) 

or a non-public arbitrator (one with securities 

industry experience),193 has a continuous duty to 

disclose conflicts of interest fully.194 This conflict 

disclosure encompasses interests, relationships, 

and circumstances that may affect, or appear to 

affect, an arbitrator’s ability to render an objective 

and impartial decision.195 Investors asserted that 

prior employment in the securities industry affected 

arbitrator neutrality, and that despite FINRA’s 

requirements, arbitrators with conflicts and 

pro-industry biases were adjudicating arbitration 

hearings. 

Investors also voiced their concerns and overall 

dissatisfaction with mandatory pre-dispute 

arbitration. The Ombudsman explored these 

concerns in depth during one-on-one discussions 

with individual investors on numerous occasions. 

Investors often asserted that they would have more 

rights and fare better financially if their disputes 

were adjudicated in court rather than in arbitration. 

In support of one complaint, an investor discussed 

with the Ombudsman a detailed timeline of events 

that ultimately led to an arbitration award amount 

that was a meager portion of the damages claimed. 

Furthermore, the investor’s attorney and expert fees 

far exceeded the award amount. 

The Ombudsman reviewed voluminous records, 

studies, legislative histories, policy discussions, 

and commentaries on how retail investors fare 

in arbitration proceedings. The Ombudsman 

also discussed the issue informally with other 

ombudsmen, industry professionals, and 

Commission staff. Long-held perspectives on the 

benefits and drawbacks of mandatory pre-dispute 

arbitration remain in conflict.196 Backers of 

mandatory pre-dispute arbitration maintain that 

it is an efficient and cost-effective alternative to 

litigation and may provide the greatest benefits to 

investors with small claims.197 Opponents assert 

that mandatory pre-dispute arbitration forces 

investors to waive their right to choose the judicial 

process over arbitration at the outset,198 results 

in awards that are often a fraction of the actual 

losses,199 and contributes to the perception held by 

many investors that the overall process is unfair.200 

The consideration of, and resources dedicated to, 

these investors and their complaints demonstrate 

the Ombudsman’s unique ability to bring important 

26 | OFFICE OF THE INVESTOR ADVOCATE 
issues to the attention of the Investor Advocate 

on behalf of retail investors. The Ombudsman 

continues to field complaints and examine 

investors’ concerns about the arbitration process, 

and further analysis is necessary to determine what 

formal recommendations the Ombudsman may 

present to the Investor Advocate. 

Creating a Forum for Discussion and 

Recommendations 

Two additional examples highlight the Ombuds

man’s service behind the numbers. In the first 

instance, a solo practitioner contacted the 

Ombudsman with specific complaints about the 

process required to submit a certain filing via the 

SEC’s Electronic Data Gathering and Retrieval 

(“EDGAR”) system. The practitioner felt that her 

difficulties could also affect other small filers and 

hinder, rather than facilitate, capital formation. 

She also provided a summary of her difficulties 

with the EDGAR filing process and suggestions 

for improvement. By creating a genuine forum for 

discussion, the Ombudsman resolved the practi

tioner’s immediate request that her complaint and 

recommendations for improvement be considered 

by SEC staff. The Ombudsman continues to 

examine the specific complaints and recommenda

tions in detail and, as appropriate, will work with 

agency staff to address the matter. 

On a separate occasion, a retired financial industry 

professional contacted the Ombudsman to discuss 

concerns about corporate bond transaction 

practices adversely affecting certain retail investors. 

It became apparent that he identified the concerns 

based on his significant industry experience and 

familiarity with corporate bond transactions. At 

the encouragement of the Ombudsman, the retired 

­

­

­

professional offered a detailed written analysis 

of his concerns for the Ombudsman’s review, 

which the Ombudsman shared with staff in the 

Office of the Investor Advocate for reference. The 

Ombudsman is reviewing the analysis with the 

support of other SEC staff and, if appropriate, will 

make a formal recommendation to the Investor 

Advocate for his consideration. In this way, the 

Ombudsman’s standard of service, individual 

attention, and responsiveness support the mandate 

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. 

OUTLOOK 

Based on the continued flow of inquiries and 

complaints, the Ombudsman will consider appro

priate recommendations to address concerns 

raised by retail investors relating to SROs, and in 

particular, the mandatory pre-dispute arbitration 

process. Likewise, the Ombudsman will engage 

with other SEC divisions and offices to gain 

greater familiarity with their inquiry and complaint 

procedures and, if appropriate, may offer recom

mendations for improvements to better serve 

retail investors. Finally, the Ombudsman looks 

to the coming year as an opportunity to establish 

deeper relationships with staff across the agency to 

facilitate dialogue and further develop an ongoing 

forum for recommendations benefitting retail 

investors. 

Tracey L. McNeil 

­

­

Ombudsman 

REPORT ON ACTIVITIES: FISCAL YEAR 201 5 | 27
28 | OFFICE OF THE INVESTOR ADVOCATE 
SUMMARY OF INVESTOR ADVISORY
 

COMMITTEE RECOMMENDATIONS AND
 

SEC RESPONSES
 

Congress established the Investor Advisory 

Committee (“IAC”) to advise and consult 

with the Commission on regulatory 

priorities, initiatives to protect investor interests, 

initiatives to promote investor confidence and 

the integrity of the securities marketplace, and 

other issues.201 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.202 

Exchange Act Section 39 authorizes the Committee 

to submit findings and recommendations for review 

and consideration by the Commission.203 The 

statute also requires the SEC “promptly” to 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.204 While 

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

or act upon the recommendations.205 

In its reports to Congress, including this one, the 

Office of the Investor Advocate summarizes the 

IAC recommendations and the SEC’s responses 

to them.206 This Report covers all recommendations the IAC has made since its inception because 

either there are continuing developments with 

respect to each recommendation or the response 

of the Commission is pending.207 SEC responses 

to IAC recommendations may take various forms. 

If an IAC recommendation pertains to a current 

rulemaking, the Commission’s proposing release or 

the adopting release may constitute the Commis

sion’s response. If an IAC recommendation involves 

no current rulemaking, Chair White has indicated 

that the Commission will respond with a written 

statement.208 

The Commission may be pursuing initiatives 

that are responsive to IAC recommendations 

but have not yet been made public. Commission 

staff—including staff of the Office of the Investor 

Advocate—is prohibited from disclosing nonpublic 

information.209 Therefore, any such initiatives are 

not reflected in this Report. 

Empowering Elders and Other Investors: 

Background Checks in the Financial Markets 

This recommendation, adopted on July 16, 2015, 

asks the SEC to: 

§ Develop a disciplinary database for violations 

of the securities laws that will allow elders 

and other investors to conduct searches of any 

person or firm sanctioned for these violations 

easily; 

§ Begin to reduce the complexity of background 

searches by taking steps to simplify the search 

process, including steps to ensure comparable 

quality between BrokerCheck and the Investor 

Advisor Public Disclosure (“IAPD”) system and 

the development of an appropriately named 

site that will permit a single search through 

which elders and other investors can access 

information in all databases supervised by the 

SEC in whole or in part; and 

­

REPORT ON ACTIVITIES: FISCAL YEAR 201 5 | 29
30 | OFFICE OF THE INVESTOR ADVOCATE

§ Seek to obtain the agreement from other federal 

regulators, self-regulatory organizations, and 

state regulators for the development of a single 

site that will permit a search of all relevant 

databases that provide background information 

on financial market professionals. 

Within the Reporting Period, the Commission had 

not yet responded to this recommendation.

Shortening the Trade Settlement Cycle in 

U.S. Financial Markets

This recommendation, adopted on February 12, 

2015, calls for shortening the security settlement 

period in the U.S. financial markets from a 

three-day settlement cycle (referred to as “T+3”) 

to a one-day settlement cycle (“T+1”) for “at 

least” transactions in U.S. equities, corporate and 

municipal bonds, and unit investment trusts. 210 

The IAC acknowledged a proposal of the 

Depository Trust & Clearing Corporation 

(“DTCC”) to shorten the settlement cycle to a 

two-day period (“T+2”), but favored a move to 

T+1 in the near term. To the extent that T+2 was 

pursued nevertheless, the IAC recommended that 

the Commission 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. 

COMMISSION RESPONSE. In a letter to two 

industry association leaders on September 16, 2015, 

Chair White expressed her strong support for 

efforts to shorten the settlement cycle from T+3 to 

T+2.211 She urged the Industry Steering Committee 

(“ISC”) “to continue to pursue the necessary steps 

towards achieving this important goal as promptly 

as possible.” As its name suggests, the ISC is a 

committee composed of members from across the 

securities industry. Under a plan outlined in an 

ISC White Paper, the settlement cycle would be 

shortened by no later than the third quarter 

of 2017.212

According to the Chair’s letter, the most significant 

regulatory changes needed to move to T+2 would 

be amendments to the various rules of the SROs 

that specifically mandate a three-day settlement 

cycle or that are keyed to the settlement date and 

require pre-settlement actions. Therefore, the Chair 

has directed the Commission staff to work closely 

with the SROs to develop detailed schedules to 

consider the necessary SRO rule amendments. 

According to her letter, she requested that the SROs 

finalize these schedules by October 31, 2015. In 

addition, she has instructed the Commission staff 

to develop a proposal to amend Exchange Act 

Rule 15c6-1(a) to require settlement no later than 

T+2. She cautioned that the initiative should not be 

seen as a precondition for nor an impediment to the 

execution of the plan described in the White Paper, 

nor to any future efforts to shorten the settlement 

cycle even further.

SEC Commissioners Michael S. Piwowar and 

Kara M. Stein issued a joint statement on June 

29, 2015, 213 expressing their willingness to work 

with fellow Commissioners and staff, as well as 

partnering with market participants, to shorten 

the settlement cycle as soon as possible. Their 

statement referred specifically to the IAC recommendation.

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.”214 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 will act in an 

impartial manner and is not subject to impermissible conflicts of interest. In adopting these recom-
mendations, 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. Chair White focused 

on this issue in a speech to a national conference 

of the Society of Corporate Secretaries and 

Governance Professionals in June 2015, in which 

she specifically referred to the concerns of the 

IAC.215 Chair White said that staff in the Division 

of Corporation Finance, after reviewing the 

various rules that govern proxy solicitations, has 

acknowledged that the current rules do not address 

directly whether a broker (or its agent) is required 

or permitted to share such preliminary vote tallies 

with other parties. The Chair observed that, if 

the Commission were to advance a rulemaking 

in this area, it could take several forms, and she 

described two of those forms. However, the Chair 

also urged companies to engage constructively 

with shareholders to resolve the issue on their own. 

“In this context,” she told her audience, “since 

companies have direct access to the voting results, 

they should themselves consider leveling the field 

by agreeing or consenting to a mechanism that 

provides the interim vote tallies to shareholder 

proponents.” 

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.216 The IAC 

first recommended that the Commission seek 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 expects, 

the analysis reveals a failure to meet that goal, then 

the Committee recommended prompt rulemaking 

to revise the definition. 

The IAC also recommended that the Commission 

revise the definition to enable individuals to qualify 

as accredited investors based on their financial 

sophistication. However, should the Commission 

choose to continue with an approach that relies 

exclusively or mainly on financial thresholds, the 

Committee recommended the consideration of 

alternative approaches to setting those thresholds, 

such as limiting investments in private offerings to 

a percentage of assets or income. 

In addition to any changes to the accredited 

investor standard, the IAC recommended that 

the Commission take concrete steps to encourage 

development of an alternative means of verifying 

accredited investor status that shifts the burden 

away from issuers. The IAC also recommended 

that the Commission 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. At the IAC meeting 

on April 9, 2015, Chair White stated that the staff 

was working to complete its internal review of the 

definition of accredited investor.217 The report was 

pending as of the end of this Reporting Period. 

Crowdfunding 

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

a package of six recommendations for the SEC 

to strengthen its proposed rules to implement the 

crowdfunding provisions of the JOBS Act.218 The 

Committee stated that its recommendations would 

better ensure that investors understand the risks 

of crowdfunding and avoid unaffordable financial 

losses. Among other things, the Committee recom

mended that the SEC: 

§ Adopt tighter limits on the amount of money 

that investors could invest in crowdfunding; 

§ Strengthen the mechanisms for the enforcement 

of the investment limits to better prevent errors 

and evasion; 

­

REPORT ON ACTIVITIES: FISCAL YEAR 201 5 | 31
32 | OFFICE OF THE INVESTOR ADVOCATE

§ Clarify and strengthen the obligations of 

crowdfunding intermediaries to ensure that 

issuers comply with their legal obligations; 

clarify the requirements for background checks; 

clearly affirm the right of portals to “curate” 

offerings; and consider a tiered regulatory 

structure based upon factors such as the size of 

offering, investment limits, and participation 

by individuals with a record of securities law 

violations;

§ Enhance the effectiveness of educational 

materials for investors;

§ Replace the proposed definition of electronic 

delivery with a stronger definition that, at a 

minimum, requires disclosure of a specific URL 

where required disclosures can be found; and

§ Replace the proposal to eliminate application 

of the integration doctrine with a narrower 

approach.

COMMISSION RESPONSE. On October 30, 2015,

after this reporting period ended, the Commission 

adopted final rules to permit companies to offer 

and sell securities through crowdfunding.219 Our 

next report to Congress will provide details on the 

final rules and how they relate to the IAC recommendations.

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.220 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 

small-cap companies. 

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 prove 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. On June 24, 2014, 

the Commission directed the national securities 

exchanges and FINRA (collectively, “SROs”) to 

submit a plan for a pilot program to test a tick size 

of five cents per share in three groups of securities. 

Within the Order to the SROs, the Commission 

specifically discussed the IAC recommendations.221 

On May 6, 2015, the Commission approved the 

SROs’ proposal, with modifications, for a pilot 

program to widen tick sizes for stocks of some 

smaller companies.222 Among other modifications, 

the Commission increased the duration of the 

pilot program (from one year to two years) while 

reducing the size of companies in it (lowering the 

market capitalization threshold from $5 billion to 

$3 billion). Implementation is scheduled to begin 

on October 3, 2016. To establish a baseline, data 

will be collected starting six months prior to the 

Pilot Period.

In the footnotes to the SEC release dated 

May 6, 2015, several references are made to 

the IAC recommendations. In particular, footnote 

269 states the IAC’s “concern that a pilot would 

disproportionately harm retail investors because 

their trading costs would rise.” It goes on to note, 

“[t]he Commission has carefully considered the 

IAC Recommendations from January 2014. After 

careful deliberation and considering the IAC 

Recommendations, the Commission is approving 

the NMS plan, as modified.” 

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 
 

 

The IAC asserted that the examination cycle for 

SEC-registered investment advisers, was “simply 

inadequate to detect or credibly deter fraud.” 

COMMISSION RESPONSE. While refraining from 

taking a position on user fees, the Commission’s 

FY 2015 budget request made it a top priority to 

increase examinations of investment advisers. The 

Commission’s request called for an increase of 316 

new positions to the examination program in the 

SEC’s Office of Compliance Inspections and Examinations (OCIE).224 Congress appropriated $1.5 

billion for the SEC in FY 2015, which was less than 

the SEC’s request of $1.722 billion but 11 percent 

more than the previous year’s overall budget. With 

the increased funding, the Commission has used 

a portion to increase its examination staff by 91 

full-time equivalents or FTEs. In addition, the SEC 

budget request for FY 2016 calls for funding to 

hire an additional 225 OCIE examiners, primarily 

to conduct additional examinations of investment 

advisers.225 

In a related development, Chair White has asked 

staff to develop recommendations for a program 

of third-party compliance reviews for investment 

advisers. The reviews would supplement, but 

not replace, the examinations conducted by 

OCIE staff.226 

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.227 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 said 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.228 

The following month, she told the IAC: 

As most of you know from the remarks I made 

last month on my own behalf, I expect we will 

be discussing advancing rulemakings to impose 

a uniform fiduciary duty on broker-dealers and 

investment advisers under Section 913 of the 

Dodd-Frank Act and to require a program of 

third party examinations of investment advisers 

to increase our exam coverage. 

Further Commission action is pending. 

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.229 

The IAC also encouraged the Commission to hold 

one or more roundtable discussions on the topic. 

REPORT ON ACTIVITIES: FISCAL YEAR 201 5 | 33
 

 

 

 

COMMISSION RESPONSE. In a speech in June 

2015, Chair White stated that she had asked 

Commission staff to bring appropriate rulemaking 

recommendations before the Commission on 

universal proxy ballots.230 In the same speech, 

she appealed to corporations to “[g]ive meaningful 

consideration to using some form of a universal 

proxy ballot even though the proxy rules currently 

do not require it.” Previously, on February 19, 

2015, the Commission hosted a Proxy Voting 

Roundtable to explore issues related to proxy 

voting, including the use of a universal ballot.231 

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.232 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, 

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 

incorporated the collection of structured data into 

several final and proposed rules: 

Liquidity Risk of Mutual Funds. On September 

22, 2015, the Commission proposed a new rule 

and amendments to promote effective liquidity 

risk management throughout the open-end fund 

industry.233 The proposed approach would provide 

the framework for detailed reporting and disclosure 

about the liquidity of funds’ portfolio assets in a 

structured data format on proposed Form N-PORT. 

The proposing release described these advantages 

of such disclosure: 

“[T]he structured data format would increase 

the ability of Commission staff, investors, and 

other potential users to aggregate and analyze 

the data in a much less labor-intensive manner. 

This data, in turn, would assist Commission 

staff in monitoring risks and trends with 

respect to funds’ portfolio liquidity (for 

example, observing whether portfolio liquidity 

increases or decreases in response to market 

events), and would also permit investors to 

better evaluate the liquidity profile of funds’ 

portfolios and better assess the potential for 

returns and risks of a particular fund.”234 

Registration of Security-Based Swap Dealers. 

On August 5, 2015, the Commission adopted 

new rules to provide a comprehensive process for 

security-based swap dealers and major securitybased swap participants to register with the 

SEC.235 The rules will require applications and 

any additional documents to be filed electronically 

with the Commission through the Commission’s 

EDGAR system. The registration and other forms 

are being developed with a graphical user interface 

that will allow users to complete a fillable form on 

the EDGAR website. This data will be collected 

in a structured format, obviating the need for the 

Commission to require SBS Entities to submit the 

information in a “tagged” format. 

Clawbacks. On July 1, 2015, the Commission 

proposed rules directing national securities 

exchanges and associations to establish listing 

standards requiring companies to adopt policies 

that require executive officers to pay back 

incentive-based compensation that they were 

awarded erroneously.236 The proposal would 

require listed issuers to disclose how they have 

applied their recovery policies in an interactive 

data format using XBRL with block-text tagging.237 

The interactive data would have to be provided as 

an exhibit to the definitive proxy or information 

statement filed with the Commission and as an 

exhibit to the annual report on Form 10-K. Issuers 

34 | OFFICE OF THE INVESTOR ADVOCATE 
 

 

would be required to prepare their interactive data 

using the list of tags the Commission specifies.238 

The Commission affirmed its belief that tagged data 

“would lower the cost to investors of collecting this 

information, and would permit data to be analyzed 

more quickly by shareholders, exchanges and 

other end-users than if the data was provided in a 

non-machine readable format.”239 

Furthermore, the Commission observed that the 

interactive data format in XBRL “may facilitate 

the extraction and analysis of the information 

contained in the disclosure across a large number of 

issuers or, eventually, over several years.”240 

Earlier rulemakings. As detailed in our Report on 

Activities filed on June 30, 2015, the Commission 

has incorporated structured data requirements in 

previous rulemakings, including proposals related 

to investment company reporting modernization,241 

executive pay versus performance,242 Regulation 

A,243 asset-backed securities disclosure and registration,244 and money market funds.245 

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.246 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”).247 

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 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.248 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 506.249 

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 offerings250 

and disqualifying offerings involving felons and 

other bad actors.251 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.252 The majority of the IAC 

recommendations relate to the proposed rule, 

which has not yet been adopted. The Commission 

placed the rulemaking on its Regulatory Flexibility 

Agenda—Spring 2015,253 indicating that the 

Commission expects to consider a final rule by the 

end of the first quarter of 2016. 

REPORT ON ACTIVITIES: FISCAL YEAR 201 5 | 35
 

 

14	 See SEC, Equity Market Structure Advisory Committee

Meeting (May 13, 2015), https://www.sec.gov/news/ 

otherwebcasts/2015/equity-market-structure-advisorycommittee-051315.shtml (last visited Nov. 12, 2015). 

15	 See Bradley Hope & Scott Patterson, NYSE Plan 

Would Revamp Trading, Wall St. J. (Dec. 17, 2014), 

http://www.wsj.com/articles/intercontinental-exchangeproposing-major-stock-market-overhaul-1418844900. 

(Intercontinental Exchange Inc. controls the NYSE, 

NYSE Arca and NYSE MKT exchanges). 

16	 See Letter from Joe Ratterman, CEO, BATS Global 

Markets, Inc. to Brent Fields, Sec’y, SEC, File No. 

4-680 (Jan. 21, 2015), https://www.sec.gov/rules/ 

petitions/2015/petn4-680.pdf. (BATS Global Markets 

controls the BATS, BATS Y, EDGA and EDGX 

exchanges). 

17	 See generally NasdaqTrader, Nasdaq Equity Trader 

Alert #2015-18, Amended Liquidity Codes for Select 

Symbols (Feb. 5, 2015), http://www.nasdaqtrader.com/ 

TraderNews.aspx?id=ETA2015-18. 

18	 Regulation of Exchanges and Alternative Trading 

System: Final Rule, Exchange Act Release 

No. 34-40760 (Dec. 8, 1998) [63 FR 70844 

(Dec. 22, 1998)]. 

19	 See White Speech, supra note 13. 

20	 See FINRA, Regulatory Notice 14-48, FINRA 

Requests Comment on a Proposal to Publish OTC 

Equity Volume Executed Outside Alternative Trading 

Systems (Nov. 2014), http://www.finra.org/industry/ 

notices/14-48. 

21	 See Order Approving a Proposed Rule Change, as 

Amended by Amendment No. 1, To Expand FINRA’s 

Alternative Trading System Transparency Initiative 

by Publishing OTC Equity Volume Executed Outside 

ATSs, Exchange Act Release No. 34-76078 

(Oct. 5, 2015) [80 FR 61246 (Oct. 9, 2015)]. 

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

23	 See 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. 34-75693 (Aug. 13, 2015) 

[80 FR 50370 (Aug. 19, 2015)]; see also Letter from 

Anders Franzon, VP, Assoc. Gen. Counsel, BATS 

Global Markets, Inc. to Brent Fields, Sec’y, SEC, File 

No. SR-BATS-2015-57 (Nov. 6, 2015), http://www. 

sec.gov/comments/sr-bats-2015-57/bats201557-6.pdf 

(stating BATS’ intention to amend in response to public 

comment and refile as File No. SR-BATS-2015-101). 

24	 See Notice of Filing of Proposed Rule Change To 

Implement CHX SNAP, an Intra-Day and On-Demand 

Auction Service, Exchange Act Release No. 34-75346 

(July 1, 2015) [80 FR 39172 (July 8, 2015)]. 

ENDNOTES 

1	 Exchange Act § 4(g)(2)(A)(ii), 15 U.S.C. § 78d(g)(2)(A)(ii) 

(2012). 

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

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

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

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

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

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. We do not set forth a separate inventory of 

pre-existing items. 

7	 Report on Objectives, Fiscal Year 2015, supra note 4. 

8	 See Regulation Systems Compliance and Integrity, 

Exchange Act Release No. 34-73639 (Nov. 19, 2014) 

[79 FR 72252 (Dec. 5, 2014)] [hereinafter “Reg SCI”]. 

9	 See FINRA, Regulatory Notice 15-09, Guidance on 

Effective Supervision and Control Practices for Firms 

Engaging in Algorithmic Trading Strategies (Mar. 

2015), http://www.finra.org/industry/notices/15-09. 

The guidance focused on five general areas: General 

Risk Assessment and Response; Software/Code 

Development and Implementation; Software Testing 

and System Validation; Trading Systems; and 

Compliance. 

10	 See Bradley Hope & Dan Strumpf, NYSE, Nasdaq, 

Planning Pact to Back Up Each Other’s Closing 

Auctions, Wall St. J. (July 22, 2015), http://www.wsj. 

com/articles/nyse-nasdaq-planning-pact-to-back-upeach-others-closing-auctions-1437603718. 

11	 Regulation NMS: Final Rules and Amendments 

to Joint Industry Plans, Exchange Act Release 

No. 34-51808 (June 9, 2005) [70 FR 37496 

(June 29, 2005)] [hereinafter “Regulation NMS”]. 

12	 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. 

13	 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; Concept 

Release on Equity Market Structure, Exchange Act 

Release No. 34-61358 (Jan. 14, 2010) [75 FR 3594, 

3596 (Jan. 21, 2010)]. 

36	 | OFFICE OF THE INVESTOR ADVOCATE 
25	 See 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. 34-76087 (Oct. 6, 2015) 

[80 FR 61540 (Oct. 13, 2015)]. 

26	 See Notice of Filing of Application, as Amended, 

for Registration as a National Securities Exchange 

under Section 6 of the Securities Exchange Act of 

1934, Exchange Act Release No. 34-75925 (Sept. 

15, 2015) [80 FR 57261 (Sept. 22, 2015)]; see also 

SEC, IEX Form 1 Application, Exhibit E, http://www. 

sec.gov/rules/other/2015/investors-exchange-form-1­

exhibits-a-e.pdf#page=571 (last visited Nov. 12, 2015). 

27	 See Order Approving the National Market System Plan 

to Implement a Tick Size Pilot Program, Exchange Act 

Release No. 34-74892 (May 6, 2015) [80 FR 27514 

(May 13, 2015)]; see also Order Granting Exemption 

From Compliance With the National Market System 

Plan To Implement a Tick Size Pilot Program, Securities 

Exchange Act Release No. 76382 (Nov. 6, 2015) [80 

FR 70284 (Nov. 13, 2015)]. 

28	 See, e.g., Letter from Managed Funds Association, 

Equity Market Structure Policy Recommendations 

(Sept. 30, 2014), https://www.managedfunds.org/ 

wp-content/uploads/2014/09/MFA-Equity-MktStructure-Recommendations-final-9-30-14.pdf. 

29	 See Blackrock VieWpoint, U.S. Equity Market 

Structure: An Investor Perspective (Apr. 2014), https:// 

www.blackrock.com/corporate/en-us/literature/ 

whitepaper/viewpoint-us-equity-market-structureapril-2014.pdf (last visited Nov. 12, 2015). 

30	 See, e.g., Letter from ICI, MFA and SIFMA to Mary 

Jo White, Chair, SEC, Customer-Specific Order 

Routing Disclosures for Institutional Investors 

(Oct. 23, 2014), https://www.managedfunds.org/ 

wp-content/uploads/2014/10/Cover-Letter-forExecution-Venue-Template1.pdf; see also Standardized 

Disclosure Template, http://www.sifma.org/ 

uploadedfiles/correspondence/comment_letters/2014/ 

standardized%20broker%20routing%20venue%20 

analysis.pdf (last visited Nov. 12, 2015). 

31	 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-lettersec-investor-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. 34-75599 

(Aug. 4, 2015) [80 FR 47978 (Aug. 10, 2015)]. 

32	 See Michael S. Piwowar, Comm’r, SEC, Remarks at 

the SEC Equity Market Structure Advisory Committee 

Meeting (Oct. 27, 2014), http://www.sec.gov/news/ 

statement/remarks-emsac-102715-piwowar.html 

(“Although the Commission may have good intentions 

with respect to an equity market structure review, 

we have been slow out of the starting blocks.”); see 

also Stephanie Russell-Kraft, SEC’s Gallagher Rues 

Slow Market Structure Reform, laW 360 (June 3, 

2015), http://www.law360.com/articles/663528/sec-sgallagher-rues-slow-market-structure-reform (“Each 

one of those issues will be a shiny object to the SEC 

that it will chase down some hole for two years, and 

that’s sort of the inclination of the place. To beat one 

issue to the ground, maybe address it, maybe do a 

rule change.”). 

33	 See, e.g., 5 C.F.R. § 2635.703 (2014). Commission 

staff, including the Investor Advocate, are prohibited 

from disclosing non-public information, including 

information about internal agency deliberations that 

have not been made public. See also infra note 209. 

On November 18, 2015, outside of the Reporting 

Period, the Commission proposed amending 

Regulation ATS to enhance the operational 

transparency of those venues that trade listed equity 

securities. See Regulation of NMS Stock Alternative 

Trading Systems, Securities Act Release No. 76474 

(Nov. 18, 2015) (File No. S7-23-15). The Office will 

monitor the public comment process and evaluate the 

proposal’s potential impact on investors. 

34	 See, e.g., SEC, Press Release, SEC Charges Direct 

Edge Exchanges With Failing to Properly Describe 

Order Types, 2015-2 (Jan. 12, 2015), http://www.sec. 

gov/news/pressrelease/2015-2.html (settled without 

admission). See, e.g., SEC, Press Release, SEC Charges 

UBS Subsidiary With Disclosure Violations and 

Other Regulatory Failures in Operating Dark Pool, 

2015-7 (Jan. 15, 2015), http://www.sec.gov/news/ 

pressrelease/2015-7.html (settled without admission). 

35	 See SEC, Press Release, SEC Charges ITG with 

Operating Secret Trading Desk and Misusing Dark 

Pool Subscriber Trading Information, 2015-164 

(Aug. 12, 2015), http://www.sec.gov/news/ 

pressrelease/2015-164.html (settled with admission). 

36	 See, e.g., SEC, Press Release, SEC Penalizes Morgan 

Stanley for Violating Market Access Rule, 2014-274 

(Dec. 10, 2014), http://www.sec.gov/News/ 

PressRelease/Detail/PressRelease/1370543668817 

(penalized without admission); see, e.g., SEC, Press 

Release, SEC Charges Goldman Sachs with Violating 

Market Access Rule, 2015-133 (June 30, 2015), http:// 

www.sec.gov/news/pressrelease/2015-133.html (settled 

without admission); see, e.g., SEC, Press Release, 

OZ Management LP Admits Providing Inaccurate 

Data, Impacting Brokers’ Records and “Blue Sheets”, 

2015-145 (July 14, 2015), http://www.sec.gov/news/ 

pressrelease/2015-145.html (settled with admission). 

REPORT ON ACTIVITIES: FISCAL YEAR 201 5 | 37
 

 

 

37	 See SEC, Press Release, Credit Suisse to Pay $4.25 

Million and Admits to Providing Deficient “Blue 

Sheet” Trading Data, 2015-214 (Sept. 28, 2015), http:// 

www.sec.gov/news/pressrelease/2015-214.html (settled 

with admission). 

38	 See, e.g., SEC, Litig. Release, SEC v. Donald L. Koch 

and Koch Asset Management, LLC, No. 23308 (D.C. 

Cir. July 20, 2015), http://www.sec.gov/litigation/ 

litreleases/2015/lr23308.htm (aff’d SEC order); see, 

e.g., SEC, Litig. Release, SEC v. Gary S. Williky, No. 

23211 (Mar. 2, 2015), https://www.sec.gov/litigation/ 

litreleases/2015/lr23211.htm (charges filed). 

39	 See SEC, Press Release, SEC Charges New York-Based 

High Frequency Trading Firm With Fraudulent 

Trading to Manipulate Closing Prices, 2014-229 

(Oct. 16, 2014), http://www.sec.gov/News/ 

PressRelease/Detail/PressRelease/1370543184457 

(settled without admission). 

40	 See SEC, Press Release, SEC Charges Canadian 

Man With Conducting Fraudulent Trading Scheme, 

2015-4 (Jan. 13, 2015), http://www.sec.gov/news/ 

pressrelease/2015-4.html (charges filed). 

41	 See generally, Luigi Guiso & Paolo Sodini, Household 

Finance: An Emerging Field, in 2 HandBook of 

tHe economicS of finance 1397 (Elsevier B.V. ed., 

2013), http://www.eief.it/files/2014/01/guiso_sodinihousehold-finance-an-emerging-field.pdf. Includes an 

excellent survey of the state of literature on household 

stockholding behavior and other issues of household 

finance. 

42	 See Comment Letter, Rick A. Fleming, Investor 

Advocate, SEC, RE: Regulatory Notice 2014-16, 

Request for Comment Regarding MSRB Strategic 

Priorities, at 2 (Oct. 31, 2014), http://www.msrb.org/ 

RFC/2014-16/Rick_Fleming.pdf. 

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

SEC, RE: MSRB Regulatory Notice 2014-20, Request 

for Comment on Draft Rule Amendments to Require 

Dealers to Provide Pricing Reference Information on 

Retail Customer Confirmations (Jan. 20, 2015), http:// 

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

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

RE: FINRA Regulatory Notice 14-52, Request for 

Comment on Pricing Disclosure in the Fixed Income 

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

default/files/notice_comment_file_ref/SEC.pdf. 

44	 Id. 

45	 MSRB, Regulatory Notice 2015-15, 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/ 

Regulatory-Notices/RFCs/2015-16.ashx. In essence, 

the MSRB’s proposed changes “would require dealers 

acting as principal to disclose to retail customers 

their mark-up from the prevailing market price of a 

municipal security if the dealer makes a corresponding 

trade within two hours of the customer trade. To 

assist investors in learning more about the market 

for their traded security, the draft amendments also 

would require all retail customer confirmations to 

include a link to the main page for the security on the 

MSRB’s Electronic Municipal Market Access (EMMA) 

website.” MSRB, Press Release, MSRB Requests 

Comment on Requiring Disclosure of Mark-Ups (Sept. 

24, 2015), http://www.msrb.org/News-and-Events/ 

Press-Releases/2015/MSRB-Requests-Comment-onRequiring-Disclosure-of-Mark-Ups.aspx; FINRA, 

Regulatory Notice 15-36, Pricing Disclosure in the 

Fixed Income Markets, FINRA Requests Comment on 

a Revised Proposal Requiring Confirmation Disclosure 

of Pricing Information in Corporate and Agency 

Debt Securities Transactions (Oct. 12, 2015), http:// 

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

Regulatory-Notice-15-36.pdf. In essence, FINRA’s 

revised proposal would require member firms 

to disclose additional information on customer 

confirmations for transactions in corporate and agency 

debt securities. Id. The revised proposal changed the 

proposal in Regulatory Notice 14-52 by “replacing 

the size-based disclosure threshold with a retail 

customer standard, permitting firms to use alternate 

methodologies for calculating the reference price for 

more complex trade scenarios; requiring firms to add 

a link to TRACE on the confirmation; and proposing 

additional exceptions from the requirements.” Id. 

46	 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, at 2 (July 13, 2015), http://www.msrb.org/ 

RFC/2015-08/OIAD.pdf. 

47	 Id. 

48	 MSRB, Press Release, MSRB to Create Investor 

Advisory Group (Sept. 17, 2015), http://www.msrb. 

org/News-and-Events/Press-Releases/2015/MSRB-toCreate-Investor-Advisory-Group.aspx. 

49	 MSRB, Regulatory Notice 2015-18, Request for 

Comment on Draft Rule Amendments to MSRB 

Rule A-3 to Lengthen the Term of Board Member 

Service (Oct. 5, 2015), http://www.msrb.org/~/media/ 

Files/Regulatory-Notices/RFCs/2015-18.ashx?la=en. 

Comments were due by Nov. 19, 2015. Id. 

50	 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. 

51	 Ponemon Institute, LLC, 2014: A Year of Mega 

Breaches, at 1 (Jan. 2015), http://www.ponemon.org/ 

local/upload/file/2014%20The%20Year%20of%20 

the%20Mega%20Breach%20FINAL_3.pdf; Office 

38	 | OFFICE OF THE INVESTOR ADVOCATE 
of Personnel Management, News Release, OPM 

Announces Steps to Protect Federal Workers and 

Others from Cyber Threats (July 9, 2015), https:// 

www.opm.gov/news/releases/2015/07/opm-announcessteps-to-protect-federal-workers-and-others-fromcyber-threats/. 

52	 Elizabeth Weiss, JP Morgan Reveals Data Breach 

Affected 76 million Households, USA TODAY, 

(Oct. 3, 2014), http://www.usatoday.com/story/ 

tech/2014/10/02/jp-morgan-security-breach/16590689/. 

53	 Ponemon Institute, LLC, 2015 Cost of Data Breach 

Study: Global Analysis, at 7 (May 2015), http:// 

nhlearningsolutions.com/Portals/0/Documents/2015­

Cost-of-Data-Breach-Study.PDF. The average total 

organizational cost of a data breach in 2013 was nearly 

$5.5 million. 

54	 See SEC, SEC Staff Report to Committees on 

Appropriations of the U.S. Senate and House of 

Representatives Public Company Disclosures under 

the Federal Securities Laws, at 5 (2015) [hereinafter 

“SEC Staff Report”]; Rich Steeves, Regulatory Priority: 

Former White House Counsel Michael Gottlieb Helps 

Untangle the Web of Cybersecurity Regulations, inSide 

counSel, (Oct. 1, 2015), http://www.insidecounsel. 

com/2015/10/01/regulatory-priority. 

55	 FINRA, Targeted Exam Letter, Sweeps LetterCybersecurity (Jan. 2014), http://www.finra.org/ 

industry/cybersecurity-targeted-exam-letter. 

56	 SEC, SEC Roundtable on Cybersecurity (Mar. 26, 

2014), https://www.sec.gov/spotlight/cybersecurityroundtable/cybersecurity-roundtable-transcript.txt. 

SEC Chair Mary Jo White delivered the opening 

statement for the roundtable, highlighting the 

importance of partnerships between government 

and private sectors in cybersecurity education and 

prevention and Commissioner Aguilar stressed the 

importance of increasing dialogue on the subject 

of cybersecurity through the creation of a SEC 

cybersecurity task force. Mary Jo White, Chair, 

SEC, Opening Statement at SEC Roundtable on 

Cybersecurity (Mar. 26, 2014), http://www.sec.gov/ 

News/PublicStmt/Detail/PublicStmt/1370541286468; 

Luis A. Aguilar, Comm’r, SEC, The Commission’s 

Role in Addressing the Growing Cyber-Threat at 

SEC Cybersecurity Roundtable (Mar. 26, 2014), 

http://www.sec.gov/News/PublicStmt/Detail/ 

PublicStmt/1370541287184. The roundtable reviewed 

the cybersecurity landscape, and its impact on public 

company disclosure, market systems, broker-dealers, 

investment advisers, and transfer agents. See id. 

57	 SEC, Nat’l Exam Program Risk Alert, OCIE 

Cybersecurity Initiative, at 1 (Apr. 15, 2014), http:// 

www.sec.gov/ocie/announcement/Cybersecurity-RiskAlert--Appendix---4.15.14.pdf. OCIE staff published 

this announcement along with “a sample request for 

information and documents used in the examination 

initiative.” Id. at 2. 

58 See id. at 1; Targeted Exam Letter, supra note 55 

(detailing the goals of the sweeps and the assessment 

criteria for FINRA member firms). 

59	 FINRA, Report on Cybersecurity Practices, at 1 

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

p602363%20Report%20on%20Cybersecurity%20 

Practices_0.pdf. The report includes critical 

considerations for firms related to cybersecurity, 

such as governance framework, risk assessment, 

technical controls, incident response planning, vendor 

management, staff training, intelligence, information 

sharing, and cyber insurance. 

60	 SEC, Nat’l Exam Program Risk Alert, Cybersecurity 

Examination Sweep Summary, at 2–3 (Feb. 3, 2015), 

http://www.sec.gov/about/offices/ocie/cybersecurityexamination-sweep-summary.pdf. FINRA’s review 

period for broker-dealers covered calendar year 2013; 

adviser examinations, which began a few months 

after the broker-dealer examinations, reviewed firm 

practices in 2013 through Apr. 2014. In addition, 

OCIE determined that 93 percent of broker-dealers and 

83 percent of investment advisers have adopted written 

information security policies. Id. at n.3. 

61	 See FINRA, Investor Alerts, Cybersecurity and 

Your Brokerage Firm (Feb. 3, 2015), https://www. 

finra.org/investors/alerts/cybersecurity-and-yourbrokerage-firm; SEC, Investor Bulletin, Protecting 

Your Online Brokerage Accounts from Fraud (Feb. 3, 

2015), http://investor.gov/news-alerts/investor-bulletins/ 

investor-bulletin-protecting-your-online-brokerageaccounts-fraud; SEC, Investor Alert: Identity Theft, 

Data Breaches and Your Investment Accounts (Sept. 

22, 2015), http://www.sec.gov/oiea/investor-alertsbulletins/ia_databreaches.html. One alert includes a 

“sample list of information that [the SEC] may review 

in conducting examinations of registered entities 

regarding cybersecurity matters.” OCIE Cybersecurity 

Initiative, supra note 57, at app. 

62	 The Administrative Proceeding resulted in a settlement 

between the SEC and Respondent without Respondent 

admitting or denying the allegations and findings 

therein. In re R.T. Jones Capital Equities Mgmt., 

Inc., Advisers Act Release No. 4204 (Sept. 22, 2015), 

https://www.sec.gov/litigation/admin/2015/ia-4204. 

pdf. More than 100,000 individuals were vulnerable 

as a result of the adviser’s conduct, which triggered a 

violation of Rule 30(a) under Regulation S-P. See also 

17 C.F.R. § 248.30(a) (2015). Regulation S-P (the 

“Safeguards Rule”) “requires that every investment 

adviser registered with the Commission adopt policies 

and procedures reasonably related to: (1) insure the 

security and confidentiality of customer records and 

information; (2) protect against any anticipated threats 

or hazards to the security or integrity of customer 

records and information; and (3) protect against 

unauthorized access to or use of customer records or 

information that could result in substantial harm or 

inconvenience to any customer.” Id. 

REPORT ON ACTIVITIES: FISCAL YEAR 201 5 | 39
 

 

 

63	 SEC Staff Report, supra note 54, at 6. 

64	 Id. 

65	 See Reg SCI, supra note 8. 

66	 SEC, Press Release, SEC Announces Outreach 

Programs to Help Firms Comply with Regulation 

Systems Compliance and Integrity, 2015-80 

(May 5, 2015), http://www.sec.gov/news/ 

pressrelease/2015-80.html. 

67	 SEC, Division of Trading and Markets, Responses to 

Frequently Asked Questions Concerning Regulation 

SCI, http://www.sec.gov/divisions/marketreg/regulationsci-faq.shtml (last visited Nov. 12, 2015). 

68	 Reg SCI, supra note 8, at 440–48; see also SEC, 

Press Release, SEC Adopts Rules to Improve 

Systems Compliance and Integrity, 2014-260 

(Nov. 19, 2014), http://www.sec.gov/News/ 

PressRelease/Detail/PressRelease/1370543496356; 

Luis A. Aguilar, Comm’r, SEC, Speech at SEC 

Cybersecurity Roundtable: The Commission’s 

Role in Addressing the Growing Cyber-Threat 

(Mar. 26, 2014), http://www.sec.gov/News/PublicStmt/ 

Detail/PublicStmt/1370541287184. 

69	 See also Responses to Frequently Asked Questions 

Concerning Regulation SCI, supra note 67. 

70	 SIFMA, Principles for Effective Cybersecurity 

Regulatory Guidance, http://www.sifma.org/issues/ 

item.aspx?id=8589951691 (last visited Oct. 20, 2014). 

71	 Rick A. Fleming, Investor Advocate, SEC, Effective 

Disclosure for the 21st Century Investor (Feb. 20, 

2015), http://www.sec.gov/news/speech/022015­

spchraf.html; Rick A. Fleming, Investor Advocate, 

SEC, Address Before the Financial Regulation Summit: 

Data Transparency Transformation: The Benefits 

of Structured Data for Investors (Mar. 24, 2015), 

http://www.sec.gov/news/speech/032415-spch-rf.html. 

72	 Amendments for Small and Additional Issues 

Exemptions Under the Securities Act (Regulation A), 

Securities Act Release No. 33-9741 (March 25, 2015) 

[80 FR 21805 (April 20, 2015)]. 

73	 Id. at 21822. 

74	 SEC, Press Release, SEC Proposes Rules to Require 

Companies to Disclose the Relationship Between 

Executive Pay and a Company’s Financial Performance: 

Rules Would Provide Greater Transparency and Better 

Inform Shareholders, 2015-78 (Apr. 29, 2015), http:// 

www.sec.gov/news/pressrelease/2015-78.html. 

75	 Id. 

76	 Listing Standards for Recovery of Erroneously 

Awarded Compensation, Securities Act Release No. 

33-9861(July 1, 2015) [80 FR 41143 (July 14, 2015)] 

(“Erroneously Awarded Compensation”). 

77	 Id. at 87. 

78	 Registration Process for Security-Based Swap Dealers 

and Major Security-Based Swap Participants, Exchange 

Act Release No. 34-75611 (Aug. 5, 2015) [80 FR 

48963 (Aug. 14, 2015)] [hereinafter “Security-Based 

Swap”]. 

79	 Id. at 48971. 

80	 Open-End Fund Liquidity Risk Management 

Programs; Swing Pricing; Re-Opening of Comment 

Period for Investment Company Reporting 

Modernization Release, Securities Act Release 

No. 33-9922 (Sept. 22, 2015) [80 FR 62274 

(Oct. 15, 2015)]. 

81	 Id. at 62293. 

82	 Investment Company Reporting Modernization, 

Securities Act Release No. 33-9776 (May 20, 2015) 

[80 FR 33590 (June 12, 2015)]. 

83	 Id. at 33666. 

84	 Kathy Greenlee, Assistant Sec’y for Aging, U.S. 

Department of Health and Human Services, 

Remarks to the SEC Investor Advisory Committee 

(July 10, 2014), http://www.sec.gov/news/ 

otherwebcasts/2014/iac071014.shtml; see also Dep’t 

of Justice, Press Release, Health and Human Services 

Call for Action to Address Abuse of Older Americans 

(July 9, 2014), http://www.justice.gov/opa/pr/justicedepartment-health-and-human-services-call-actionaddress-abuse-older-americans). 

85	 See U.S. Census Bureau, 2014 National Population 

Projects: Table 6. Percent Distribution of the Projected 

Population by Sex and Selected Age Groups for the 

United States: 2015 to 2060, http://www.census.gov/ 

population/projections/files/summary/NP2014-T6.xls. 

86	 alzHeimer’S aSSociation, Alzheimer’s Facts and 

Figures, http://www.alz.org/alzheimers_disease_facts_ 

and_figures.asp (last visited Oct. 28, 2015). 

87	 Dep’t of Labor, Emp. Benefits Sec. Admin., Private 

Pension Plan Bulletin Historical Tables and Graphs 

1975-2013, at 1–3 (June 2013), http://www.dol.gov/ 

ebsa/pdf/historicaltables.pdf (Table E1 and Graph E1g). 

88	 See, e.g., David Laibson, The Age of Reason (June 

2011), http://scholar.harvard.edu/files/laibson/ 

files/ageofreason_pdf.pdf?m=1360043079 (last 

visited Nov. 12, 2015); Jason Stipp & Esther Pak, 

Why Age Matters for Financial Decision-Makers, 

morningStar: morningStar conference 2011 

(June 20, 2011), http://www.morningstar.com.au/ 

funds/article/age-matters/3576?q=printme; John 

Sullivan, Challenges, Opportunities of Aging 

Population Gauged as Morningstar Conference 

End, tHinkadViSor (June 11, 2011), http://www. 

thinkadvisor.com/2011/06/11/challenges-opportunitiesof-aging-population-gauge?page=2. 

40	 | OFFICE OF THE INVESTOR ADVOCATE 
 

 

 

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

at The American Retirement Initiative Winter 

Summit: Protecting Elderly Investors from Financial 

Exploitation: Questions to Consider (Feb. 5, 2015), 

http://www.sec.gov/news/speech/protecting-elderlyinvestors-from-financial-exploitation.html; see also The 

American Retirement Initiative Winter 2014 Summit— 

Retirement: It’s About People! (Feb. 4, 2014), http:// 

www.americanretirementinitiative.org/2014-02-04­

winter-summit/. 

90	 APS workers need to marshal the right mix of training, 

skills and capabilities to do their job. Therefore, we 

commend NAPSA for its initiative, in partnership 

with San Diego State University School of Social 

Work, to produce a body of APS core competency 

training modules on financial exploitation and other 

topics. Furthermore, NAPSA is developing training 

materials for a national certificate program based on 

the modules. academy for profeSSional excellence, 

http://theacademy.sdsu.edu/programs/master/ 

core-curriculum/ (last visited Nov. 15, 2015). 

91	 Delaware, Missouri and Washington have enacted 

statutes that permit financial institutions, including 

broker-dealers, to place temporary holds on 

“disbursements” or “transactions” if financial 

exploitation of covered persons is suspected. See del. 

code ann. tit. 31, § 3910 (2015); mo. reV. Stat. 

§ 409.600–.630 (2015); WaSH. reV. code ann. 

§ 74.34.215, 220 (2015). 

92	 FINRA, News Release, FINRA Board Approves 

Rulemaking Item to Protect Seniors and Other 

Vulnerable Adults from Financial Exploitation 

(Sept. 17, 2015), http://www.finra.org/newsroom/2015/ 

finra-board-approves-rule-protecting-seniors-financialexploitation. 

93	 FINRA, Regulatory Notice 15-37, Financial 

Exploitation of Seniors and Other Vulnerable Adults 

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

notice_doc_file_ref/Regulatory-Notice-15-37.pdf. 

94	 NASAA, Notice of Request for Comments Regarding 

NASAA’s Proposed Model Legislation or Regulation to 

Protect Vulnerable Adults from Financial Exploitation 

(Sept. 29, 2015), http://nasaa.cdn.s3.amazonaws.com/ 

wp-content/uploads/2015/09/Request-for-CommentsModel-Seniors-Legislation-Final-2.pdf. 

95	 Id. at § 7. 

96	 Id. at §§ 6, 8. 

97	 See Kathleen M. Quinn, Exec. Dir., Nat’l Adult 

Protective Servs. Ass’n, Testimony before the Senate 

Special Committee on Aging Hearing: Broken Trust: 

Combating Financial Exploitation of Vulnerable 

Seniors (Feb. 4, 2015), http://www.aging.senate.gov/ 

imo/media/doc/SCA_Quinn_2_4_15.pdf (“Federal 

support to state APS programs is desperately needed 

for them to be able to provide their life-saving, and 

asset-saving, services.”). 

98	 See id. 

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

(B)(ii)(V). 

100 NASAA, NASAA Enforcement Report: 2015 

Report on 2014 Data (Sept. 2015), http://nasaa.cdn. 

s3.amazonaws.com/wp-content/uploads/2011/08/2015­

Enforcement-Report-on-2014-Data_FINAL.pdf; see 

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

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

Nov 3, 2015). 

101 Letter from Lynnette Kelly, Exec. Dir., MSRB, to Rick 

A. Fleming, Investor Advocate, SEC, Response to SEC 

Request Highlighting Municipal Market Practices 

(Oct. 30, 2015) (on file with the Office of the Investor 

Advocate, SEC). 

102 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 2015. 

103	 See Top Investor Threats, supra note 100. 

104 This list of problematic products is based on staff 

analysis of the alerts and bulletins issued by FINRA for 

investors during FY 2015. 

105 Kelly, supra note 101. 

106 Exchange Act § 6(a), 15 U.S.C. § 78f (2014). Once 

listed on a national securities exchange, ETP shares 

also can be traded on Alternative Trading Systems (as 

defined in Regulation ATS, 17 CFR § 242.300 (2015)) 

or in other over-the-counter transactions. 

107 Request for Comment on Exchange Traded Products, 

Exchange Act Release No. 34-75165, at 3 

(June 12, 2015) [80 FR 34729 (June 17, 2015)] 

[hereinafter “ETF Request for Comment”]. 

108	 See Exchange Act Release No. 34-31591 

(Dec. 11, 1992) [57 FR 60253 (Dec. 18, 1992)] 

(order approving Amex rules to provide for the listing 

and trading of PDRs, and specifically PDRs based on 

the Standard and Poors Corporation (“S&P”) 500 

Index known as SPDRs). 

109 ETF Request for Comment, supra note 107. 

110	 Id. 

111	 Id. These figures reflect an analysis by Commission 

staff of market data obtained through subscriptions 

to Morningstar Direct and Bloomberg Professional 

services. 

112	 Id. 

113	 Id. ETFs can be either open-end fund vehicles or unit 

investment trusts. 

114	 See SEC, Office of Investor Education and Advocacy, 

Investor Bulletin, Exchange-Traded Funds (ETFs) 

(Aug. 2012), http://www.sec.gov/investor/alerts/etfs.pdf. 

REPORT ON ACTIVITIES: FISCAL YEAR 201 5 | 41
 

 

115 ETF Request for Comment, supra note 107. 

116	 Id. 

117	 See SEC, Office of Investor Education and Advocacy, 

supra note 114. 

118 ETF Request for Comment, supra note 107; see also 

Kevin Dugan, How a 56-Year-Old Engineer’s $45,000 

Loss Spurred SEC Probe, BloomBerg (Apr. 17, 2014), 

http://www.bloomberg.com/news/articles/2014-04-16/ 

how-a-56-year-old-engineer-s-45-000-note-lossspurred-sec-probe. 

119	 See ETF Request for Comment, supra note 107. 

120	 See id. 

121	 See Comment File for ETF Request for Comment, 

http://www.sec.gov/comments/s7-11-15/s71115.shtml. 

122	 See, e.g., Chris Dieterich, Many ETFs Saw Wacky 

Trading In Monday’s Selloff, Barron’s Blog 

(Aug. 25, 2015, 1:42 PM), http://blogs.barrons.com/ 

focusonfunds/2015/08/25/many-etfs-saw-wackytrading-in-mondays-selloff/. 

123 Mary Jo White, Chair, SEC, Opening Remarks to the 

Investor Advisory Committee (Oct. 15, 2015), http:// 

www.sec.gov/news/statement/white-investor-advisorycommitee-10-15-2105.html. 

124	 See Mark Flannery, Chief Economist, SEC, Remarks 

at Equity Market Structure Advisory Committee 

Meeting (Oct. 27, 2015), https://www.sec.gov/news/ 

otherwebcasts/2015/equity-market-structure-advisorycommittee-102715.shtml. 

125	 See id. 

126 Luis A. Aguilar, Comm’r, SEC, How Can the 

Markets Best Adapt to the Rapid Growth of 

ETFs? (Oct. 15, 2015), http://www.sec.gov/news/ 

statement/how-can-markets-adapt-to-rapidgrowth-etfs.html. 

127	 Id. 

128 White, Opening Remarks, supra note 123. 

129 Federal Reserve Board, Statistical Release, Financial 

Accounts of the United States: Flow of Funds, Balance 

Sheets, and Integrated Macroeconomic Accounts, 

Second Quarter 2015, 117 tbl. L.212 (Nov. 2, 2015, 

08:41 AM), http://www.federalreserve.gov/releases/z1/ 

current/z1.pdf. 

130 Kelly, supra note 101. 

131	 Id. 

132 EMMA is a service of the MSRB. It is the official 

repository of information on virtually all municipal 

securities. EMMA provides free public access to 

official disclosure, trade data, credit ratings, and other 

information about the municipal securities market. 

The EMMA website was established to increase 

transparency and provide access to vital disclosure and 

information in the municipal securities market. MSRB, 

Timing of Annual Financial Disclosures by Issuers of 

Municipal Securities, at 10 (May 2015), http://www. 

msrb.org/msrb1/pdfs/MSRB-CD-Timing-of-AnnualFinancial-Disclosures-2015.pdf. 

133	 Id. at figs 3a, 4a. 

134	 Id. Other financial information includes annual 

financial information and operating data submissions. 

Id. at 1, n.1. 

135 SEC, Report on the Municipal Securities Market, at 74 

(July 31, 2012) [hereinafter “Report on the Municipal 

Securities Market”], https://www.sec.gov/news/ 

studies/2012/munireport073112.pdf. 

136	 See MSRB, Regulatory Notice 2015-13, Bank Loan 

Disclosure Market Advisory (Jan. 29, 2015), http:// 

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

Announcements/2015-03.ashx; Kelly, supra note 101. 

137	 See Federal Deposit Insurance Corporation, Call 

Report and Thrift Financial Report Data (Nov. 3, 

2015), https://www5.fdic.gov/Call_TFR_Rpts/; Kelly, 

supra note 101. The issuance of bank loans increased 

from $96.7 billion outstanding in fourth quarter 2012 

to $192.3 billion in fourth quarter 2014. Id. 

138 Only 130 bank loan disclosures have been submitted to 

the EMMA system since 2012. See MSRB, Regulatory 

Notice 2015-13, supra note 136. 

139 With bank loan executions increasing, bank loan 

disclosures are becoming more of a concern because 

certain disclosure obligations may not be triggered by 

bank loans, direct-purchase debt, or privately placed 

debt unless determined to be a municipal security. 

Despite the efforts of market participants to encourage 

disclosure and develop best practices and guidance, the 

number of bank loan executions continues to exceed 

bank loan disclosures. See MSRB, Regulatory Notice 

2015-13, supra note 136. “Delayed or undisclosed 

debt-like obligations could result in an investor’s 

inability to assess in a timely manner the loan’s impact 

on an issuer’s credit profile and could inadvertently 

distort valuation of an issuer’s bonds in the primary 

and secondary markets.” Id. MSRB, Regulatory Notice 

2011-52, Potential Applicability of MSRB Rules 

to Certain “Direct Purchases” and “Bank Loans” 

(Sept. 12, 2011), http://www.msrb.org/en/Rules-andInterpretations/Regulatory-Notices/2011/2011-52. 

aspx?n=1; MSRB, Regulatory Notice 2011-37, 

Financial Advisors, Private Placements, and Bank 

Loans (Aug. 3, 2011), http://www.msrb.org/Rulesand-Interpretations/Regulatory-Notices/2011/2011-37. 

aspx?n=1; Kelly, supra note 101. 

140 MSRB, Glossary of Municipal Securities Terms, 

Minimum Denomination, http://www.msrb.org/ 

glossary/definition/minimum-denomination.aspx (last 

visited Nov. 15, 2015). 

42	 | OFFICE OF THE INVESTOR ADVOCATE 
 

141 MSRB, Request for Comments: Minimum 

Denomination, 21 MSRB Reports 1 (May 2001), 

http://www.msrb.org/msrb1/reports/0501v211/ 

MinDenomNotice.htm. 

142	 See SEC, Press Release, SEC Sanctions 13 Firms for 

Improper Sales of Puerto Rico Junk Bonds, 2014-246 

(Nov. 3, 2014), http://www.sec.gov/News/PressRelease/ 

Detail/PressRelease/1370543350368. 

143 MSRB Rule G-15, Confirmation, Clearance, 

Settlement and Other Uniform Practice Requirements 

with Respect to Transactions with Customers, http:// 

www.msrb.org/Rules-and-Interpretations/MSRB-Rules/ 

General/Rule-G-15.aspx; Kelly, supra note 101. 

144	 See e.g., SEC Sanctions, supra note 142. SEC 

Enforcement Division’s Municipal Securities and 

Public Pensions Unit detected improper sales below 

a $100,000 minimum denomination set in a $3.5 

billion offering of junk bonds by the Commonwealth 

of Puerto Rico earlier this year. The SEC’s subsequent 

investigation identified a total of 66 occasions when 

dealer firms sold the Puerto Rico bonds to investors 

in amounts below $100,000. The agency instituted 

administrative proceedings against the firms behind 

those improper sales. Id. 

145 MSRB, Rule G-47, Time of Trade Disclosure, http:// 

www.msrb.org/Rules-and-Interpretations/MSRB-Rules/ 

General/Rule-G-47.aspx; see also MSRB, Regulatory 

Notice 2014-07, SEC Approves MSRB Rule G-47 on 

Time-of-Trade Disclosure Obligations, MSRB Rules 

D-15 and G-48 on Sophisticated Municipal Market 

Professionals, and Revisions to MSRB Rule G-19 on 

Suitability of Recommendations and Transactions 

(Mar. 12, 2014), http://www.msrb.org/~/media/ 

Files/Regulatory-Notices/Announcements/2014-07. 

ashx?n=1; Proposed Rule Change Consisting of 

Proposed MSRB Rule G-47, Exchange Act Release 

No. 34-70593 (Oct. 1, 2013) [78 FR (Oct. 22, 2013)]. 

146 Kelly, supra note 101. 

147	 Id. 

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

SEC, RE: 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 2 (Jan. 20, 2015), 

http://www.msrb.org/RFC/2014-20/USSEC.pdf. 

149	 Id. 

150	 See, e.g., Kelly, supra note 101. In 2013, the MSRB 

engaged in a multi-year outreach effort, published a 

Market Transparency Advisory – Suggested Practices 

in Submitting of Financial Disclosures to EMMA, and 

created a free automated email reminder service of 

which approximately 7,500 municipal entities use. Id; 

see also MSRB Notice 2013-18, Market Transparency 

Advisory – Suggested Practices in Submitting of 

Financial Disclosures to EMMA (Aug. 12, 2013), 

http://www.msrb.org/Rules-and-Interpretations/ 

Regulatory-Notices/2013/2013-18.aspx; Report on 

the Municipal Securities Market, supra note 135, at 

74–83. 

151 In a Jan. 20, 2015 letter to the SEC, the MSRB 

encouraged the SEC to conduct a wholesale 

re-examination of Exchange Act Rule 15c2-12 

and consider the issuance of interpretive guidance. 

Comment Letter, Kym Arnone, Chair, MSRB, RE: 

Request for Comment on Collection of Information 

Provided for in Rule 15c2-12 under the Securities 

Exchange Act of 1934, at 5 (Jan 20, 2015), http:// 

www.msrb.org/msrb1/pdfs/MSRB-Comment-Letter-onSEC-Rule-15c2-12-January-2015.pdf. 

152	 E.g., MSRB Rule G-19, on suitability, and MSRB Rule 

G-30, on fair pricing, disclosures to investors include 

continuing disclosures consisting of information 

about the municipal security that arise after the 

initial issuance and reflect the issuer’s changing 

financial condition. MSRB Rule G-47, on time of 

trade disclosure, requires municipal securities dealers 

to disclose to customers in a primary offering and 

secondary transaction, at or prior to the time of trade, 

all material information about the security known 

by the issuer and material information reasonably 

accessible to the market. MSRB, Rule G-19, Suitability 

of Recommendations and Transactions, http://www. 

msrb.org/Rules-and-Interpretations/MSRB-Rules/ 

General/Rule-G-19.aspx (last visited Nov. 12, 2015); 

MSRB, Rule G-30, Prices and Commissions, http:// 

www.msrb.org/Rules-and-Interpretations/MSRB-Rules/ 

General/Rule-G-30.aspx (last visited Nov. 12, 2015); 

MSRB, Regulatory Notice 2014-07, supra note 145; 

Kelly, supra note 101. 

153 Kelly, supra note 101. 

154	 See, e.g., Dan Strumpf & Corrie Driebusch, Once 

Hot, Master Limited Partnerships Reel from Sharp 

Selloff, Wall St. J., (Oct. 18, 2015), http://www.wsj. 

com/articles/once-hot-master-limited-partnershipsreel-from-sharp-selloff-1445190859 (observing that 

the “sharp selloff” in MLPs has exceeded the fall in 

oil prices); Christine Buurma, Even the Dead Aren’t 

Spared as Oil Price Rout Clobbers MLPs, BloomBerg 

(Sept. 21, 2015) (stating that energy companies have 

been impacted by crude oil’s 50 percent price decline 

over the past year), http://www.bloomberg.com/news/ 

articles/2015-09-21/even-the-dead-aren-t-spared-as-oilprice-rout-clobbers-mlps; Paul J. Lim, Surviving 

the Perils of the Quest for Higher Yield, n.y.timeS, 

Feb. 14, 2015, http://nyti.ms/1CsdWFx (discussing, 

in part, the risks inherent in high-yielding securities 

such as MLPs). 

155	 See, e.g., id. 

156	 See, e.g., id. 

157	 See John Goodgame, Master Limited Partnership 

Governance, 60 Bus. L.J. 471, 474 (Feb. 2005). 

REPORT ON ACTIVITIES: FISCAL YEAR 201 5 | 43
 

 

 

 

 

 

 

 

158	 See maSter ltd. p’SHip aSS’n, http://www. 

mlpassociation.org/ (last visited Nov. 6, 2015). 

159	 See, e.g., Bernard Condon, New Way to Bet on Oil 

Wipes Out Billions in Investor Savings, aSSociated 

preSS (Oct. 26, 2015), http://bigstory.ap.org/article/8ad 

383f069304229bf1f00da5984826a/new-way-bet-oilwipes-out-billions-investor-savings; Strumpf et al, supra 

note 154. 

160	 See Goodgame, supra note 157, at 471; Master 

Limited Partnerships, Pers. Fin. Plan Handbook ¶ 7.10 

(2015). 

161	 See id; Phillip R. Clark & Peter O. Hansen, 

Understanding Master Limited Partnerships: What 

Every Oil and Gas Lawyer Needs to Know, 54 rocky 

mountain mineral l. inSt. 22 ( 2008). 

162	 See Certain Publicly Traded Partnerships Treated 

as Corporations, I.R.C. § 7704, 26 U.S.C. § 7704; 

Goodgame, supra note 157, at 471. 

163	 See Goodgame, supra note 157, at 471–72; Pers. Fin. 

Plan Handbook, supra note 160. 

164	 See Clark, supra note 161. 

165	 See Pers. Fin. Plan Handbook, supra note 161, at 

¶ 7.10. 

166	 See id. 

167	 See Goodgame, supra note 158, at 472. 

168	 See I.R.C. § 7704; Clark, supra note 161. 

169	 See id. 

170	 See Pers. Fin. Plan Handbook, supra note 160; 

Goodgame, supra note 157, at 480. 

171	 See maSter ltd. p’SHip aSS’n, Master Limited 

Partnerships 101: Understanding MLPs, at 28 

(Aug. 28, 2015), http://www.mlpassociation.org/ 

wp-content/uploads/2015/08/MLP-101-MLPA.pdf 

(last visited Nov. 12, 2015). 

172 Lim, supra note 154; Buurma, supra note 154. 

173 Condon, supra note 159. The $20 billion figure 

reportedly does not include losses from MLP bonds or 

losses from investments in private partnerships. 

174	 See alerian mlp index fact SHeet, https://www. 

alerian.com/wp-content/uploads/2015.09.30-AMZFacts.pdf (last visited Nov. 4, 2015). 

175	 See Robert Goldsborough, Are MLPs Going Down 

the Tubes, morningStar (Oct. 21, 2015), http://news. 

morningstar.com/articlenet/article.aspx?id=718519. 

176	 See Allison Sider & Russell Gold, Kinder Morgan 

to Consolidate Empire, Wall St. J., (Aug. 10, 

2014), http://www.wsj.com/articles/kinder-morganto-consolidate-in-70-billion-deal-1407704960 

(reporting that Kinder Morgan Inc. has consolidated 

its energy MLP affiliates into a single, publicly traded 

corporation); Allison Sider & Angela Chen, Williams 

Cos. to Acquire its Partnership, Wall St. J. (May 13, 

2015), http://www.wsj.com/articles/williams-to-buyits-infrastructure-partner-1431519255 (reporting that 

Williams Companies, a natural gas pipeline company, 

announced that it would acquire its MLP, Williams 

Partners LP); Goldsborough, supra note 175. 

177	 See generally Goodgame, supra note 157, at 494–95. 

178 Goodgame, supra note 157, at n.11. 

179 Based on consultations with Commission staff. 

180 Goodgame, supra note 157, at 491, 494. 

181	 Id. 

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

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

184	 Id. 

185 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. 

186 SEC, Office of the Investor Advocate, Report on 

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

http://www.sec.gov/advocate/reportspubs/annualreports/sec-office-investor-advocate-report-onobjectives-fy2016.pdf. 

187 WKSI status is available “for the most widely 

followed issuers representing the most significant 

amount of capital raised and traded in the United 

States.” See SEC, Div. of Corp. Fin., Revised 

Statement on Well-Known Seasoned Issuer Waivers 

(Apr. 24, 2014), http://www.sec.gov/divisions/corpfin/ 

guidance/wksi-waivers-interp-031214.htm (discussing 

the factors considered when determining whether to 

grant a waiver of ineligible issuer status to a WKSI). 

188 Report on Objectives, Fiscal Year 2016, supra 

note 186. 

189 Order Approving Proposed Rule Change to Amend 

the By-Laws of NASD to Implement Governance and 

Related Changes to Accommodate the Consolidation 

of the Member Firm Regulatory Functions of NASD 

and NYSE Regulation, Inc., Exchange Act Release 

No. 34-56145 (July 26, 2007) [72 FR 42169 

(Aug. 1, 2007)]. 

190	 See NASD, Notice to Members 03-70, NASD Reminds 

Members of Their Duty to Cooperate in Arbitration 

Discovery Process (Nov. 2003), http://www.finra.org/ 

industry/notices/03-70. 

191	 Id. 

192 For example, the FINRA basic arbitrator training 

course material states that “[o]ne careless gesture 

or offhand remark can lead to an impression of 

bias—which is one of the few grounds for which 

arbitration decisions can be overturned. Consequently, 

arbitrators must always be on guard and project and 

44	 | OFFICE OF THE INVESTOR ADVOCATE 
exhibit a high degree of seriousness, professionalism, 

and competency in all of their verbal and nonverbal 

communications.” The course material also lists several 

ethical considerations for arbitrators that are examined 

in further detail throughout the course. See FINRA, 

Dispute Resolution Basic Arbitrator Training, at 6-8 

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

basic-arbitrator-training-sept-2015.pdf. 

193	 See FINRA Arbitrators, https://www.finra.org/ 

arbitration-and-mediation/finra-arbitrators (last visited 

Nov. 9, 2015). 

194 Rule 12405 of the FINRA Code of Arbitration 

Procedure for Customer Disputes requires arbitrators 

to make a reasonable effort to learn of, and disclose 

to the Director of FINRA Dispute Resolution any 

interest, relationship, or circumstance that might 

preclude them from rendering an objective and 

impartial determination in the proceeding. This is 

a continuing duty of the arbitrator throughout all 

stages of an arbitration proceeding. See FINRA Code 

of Arbitration Procedure for Customer Disputes, 

Rule 12405, Disclosures Required of Arbitrators, 

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

html?rbid=2403&element_id=4146 (last visited 

Nov. 9, 2015). 

195	 See id. 

196	 See, e.g., The Securities Arbitration System, Hearing 

Before the Subcomm. on Capital Markets, Ins. and 

Gov’t Sponsored Enter., H. Comm. on Fin. Serv., 

109th Cong. (2005), http://www.gpo.gov/fdsys/pkg/ 

CHRG-109hhrg24398/pdf/CHRG-109hhrg24398.pdf. 

197	 See id. at 74-75 (Testimony of Marc E. Lackritz, 

President, Securities Industry Association). 

198	 See, e.g., Luis A. Aguilar, Comm’r, SEC, Remarks at the 

North American Securities Administrators Association, 

Annual NASAA/SEC 19(d) Conference: Outmanned 

and Outgunned: Fighting on Behalf of Investors 

Despite Efforts to Weaken Investor Protections (Apr. 

16, 2013), http://www.sec.gov/News/Speech/Detail/ 

Speech/1365171515400 (“Arbitration may be a 

viable option after a dispute arises and both parties 

knowingly agree to go into arbitration. However, my 

main concern with pre-dispute mandatory arbitration 

is the denial of investor choice; investors should not 

have their option of choosing between arbitration and 

the traditional judicial process taken away from them 

at the very beginning of their relationship with their 

brokers and advisers.”). 

199	 See, e.g., Letter from William Beatty, President and 

Washington Secs. Dir., NASAA, to FINRA Dispute 

Resolution Task Force, at 3 (Mar. 30, 2015), http:// 

www.nasaa.org/wp-content/uploads/2011/07/NASAALetter-to-FINRA-Dispute-Resolution-Task-Force-onFINRA-Arbitration-FINAL-3-30-2015.pdf. 

200	 See, e.g., Jill I. Gross & Barbara Black, When 

Perception Changes Reality: An Empirical Study 

of Investors’ Views of the Fairness of Securities 

Arbitration, 2008 J. Disp. Resol. 349, 400 (2008) 

(“[E]ven if the system meets objective standards of 

fairness, a mandatory system that is not perceived as 

doing so cannot maintain the confidence of its users 

and, in the long run, may not be sustainable. As a 

result, customers’ negative perceptions are changing 

the realities of the current system of securities 

arbitration . . . .”). 

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

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

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

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

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

206 Exchange Act § 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.” Id. 

207	 See SEC, http://www.sec.gov/spotlight/investoradvisory-committee-2012.shtml (last visited 

Nov. 12, 2015) (listing all of the recommendations of 

the SEC Investor Advisory Committee). 

208 Mary Jo White, Chair, SEC, Remarks at the Meeting 

of the Investor Advisory Committee (July 25, 2013), 

http://www.sec.gov/news/otherwebcasts/2013/ 

iac072513.shtml. 

209 17 CFR §§ 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); Sec. Exch. Comm’n Admin. Regulation 

18-2, Section B.5 (Nonpublic Information) 

(July 31, 2005). 

210 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. 

211 Letter from Mary Jo White, Chair, SEC, to Kenneth 

E. Bentsen, Jr., President & CEO, SIFMA, & Paul 

Schott Stevens, President & CEO, ICI (Sept. 16, 2015), 

https://www.sec.gov/divisions/marketreg/chair-whiteletter-to-sifma-ici-t2.pdf. 

212 The Shortened Settlement Cycle Indus. Steering 

Comm., Shortening the Settlement Cycle: The 

Move to T+2 (June 18, 2015), http://www.ust2.com/ 

pdfs/ssc.pdf. 

213 Michael S. Piwowar & Kara M. Stein, Comm’rs, SEC, 

Statement Regarding Proposals to Shorten the Trade 

Settlement Cycle (June 29, 2015), http://www.sec.gov/ 

news/statement/statement-on-proposals-to-shorten-thetrade-settlement-cycle.html. 

REPORT ON ACTIVITIES: FISCAL YEAR 201 5 | 45
 

 

 

214 Exchange Act Rule § 14a-2(a)(1), 17 CFR 

§ 240.14a-2(a)(1) (2014). 

215 Mary Jo White, Chair, SEC, Address at the Society of 

Corporate Secretaries and Governance Professionals 

69th National Conference: Building Meaningful 

Communication and Engagement with Shareholders 

(June 25, 2015) [hereinafter “White Address”], 

http://www.sec.gov/news/speech/building-meaningfulcommunication-and-engagement-with-shareholde.html). 

216 SEC, Recommendation 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/ 

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

217 Mary Jo White, Chair, SEC, Opening Remarks to the 

Investor Advisory Committee (Apr. 9, 2015), http:// 

www.sec.gov/news/statement/opening-remarks-to-theinvestor-advisory-committee.html. 

218 SEC, Recommendation of the Investor Advisory 

Committee: Crowdfunding Regulations (Apr. 10, 

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

219 Crowdfunding, Securities Act Release No. 33-9974 

(Oct. 30, 2015). 

220 SEC, Recommendation of the Investor Advisory 

Committee: Decimalization and Tick Sizes 

(Jan. 31, 2014), http://www.sec.gov/spotlight/ 

investor-advisory-committee-2012/investment-adviserdecimilization-recommendation.pdf. 

221 Order Directing the Exchanges and the Financial 

Industry Regulatory Authority To Submit a Tick Size 

Pilot Plan, Exchange Act Release No. 34-72460 

(June 24, 2014) [79 FR 36840 (June 30, 2014)]. 

222 Regulation NMS, supra note 11; Tick Size Pilot 

Program, supra note 27. 

223 SEC, Recommendation of the Investor Advisory 

Committee: Legislation to Fund Investment 

Adviser Examinations (Nov. 22, 2013), 

http://www.sec.gov/spotlight/investor-advisorycommittee-2012/investment-adviser-examinationsrecommendation-2013.pdf. 

224 Testifying in support of the budget request, Chair 

White stated, “There is an immediate and pressing 

need for significant additional resources to permit the 

SEC to increase its examination coverage of registered 

investment advisers so as to better protect investors 

and our markets.” Mary Jo White, Chair, SEC, Budget 

Hearing before H. Subcomm. on Fin. Service & Gen. 

Gov’t of the H. Comm. on Appropriations, 113th 

Cong. (Apr. 1, 2014), http://docs.house.gov/meetings/ 

AP/AP23/20140401/102004/HHRG-113-AP23­

Wstate-WhiteM-20140401.pdf. 

225 SEC, FY 2016 Budget Request Tables, http://www.sec. 

gov/about/reports/sec-fy2016-budget-request-tables. 

pdf (last visited Nov. 10, 2015); SEC, FY 2016 Budget 

Request by Program, at 68, http://www.sec.gov/about/ 

reports/sec-fy2016-budget-request-by-program.pdf 

(last visited Nov. 10, 2015). Chair White has reiterated 

these numbers in Congressional testimony. See, e.g., 

Mary Jo White, Chair, SEC, Testimony before the 

Subcomm. on Fin. Serv. and Gen. Gov’t Comm. on 

Appropriations: Fiscal Year 2016 Budget Request of 

the U.S. Securities and Exchange Commission, 113th 

Cong. (May 5, 2015), http://www.sec.gov/news/ 

testimony/testimony-fy-2016-sec-budget-request.html. 

226 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) [hereinafter “White 

Testimony”], http://www.sec.gov/news/testimony/ 

2015-ts032415mjw.html. 

227	 SEC, Recommendation of the Investor Advisory 

Committee: Broker-Dealer Fiduciary Duty 

(Nov. 22, 2013), http://www.sec.gov/spotlight/ 

investor-advisory-committee-2012/fiduciary-dutyrecommendation-2013.pdf. 

228 White Testimony, supra note 226. 

229 SEC, Recommendation of the Investor Advisory 

Committee Regarding SEC Rulemaking to Explore 

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

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

universal-proxy-recommendation-072613.pdf. 

230 White Address, supra note 215. 

231	 See SEC, https://www.sec.gov/spotlight/proxy-votingroundtable.shtml (last visited Nov. 10, 2015). 

232 SEC, Recommendation 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/ 

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

233 Open-End Fund Liquidity Risk Management, 

supra note 80. 

234	 Id. at 66. 

235 Security-Based Swap, supra note 78. 

236 Erroneously Awarded Compensation, supra note 76. 

237	 Id. at 87. 

238	 Id. 

239	 Id. 

240	 Id. at 133. 

241 Investment Company Reporting Modernization, 

supra note 82. 

46	 | OFFICE OF THE INVESTOR ADVOCATE 
 

 

242 Pay Versus Performance, Exchange Act Release 

No. 34-74835 (Apr. 29, 2015) [80 FR 26329 

(May 7, 2015)]. 

243 Regulation A, supra note 72. 

244 Asset-Backed Securities Disclosure and Registration, 

Securities Act Release No. 33-9638 (Sept. 4, 2014) 

[79 FR 57184 (Sept. 24, 2014)]. 

245 Money Market Fund Reform; Amendments to Form 

PF, Securities Act Release No. 33-9616 (July 23, 2014) 

[79 FR 47736, 47944 (Aug. 14, 2014)]. 

246 SEC, Recommendation of the Investor Advisory 

Committee: Target Date Mutual Funds 

(Apr. 11, 2013), http://www.sec.gov/spotlight/investoradvisory-committee-2012/iac-recommendation-targetdate-fund.pdf. 

247 Investment Company Advertising: Target Date 

Retirement Fund Names and Marketing, Securities Act 

Release No. 33-9126 (June 16, 2010) [75 FR 35920 

(June 23, 2010)]. 

248 Investment Company Advertising: Target Date 

Retirement Fund Names and Marketing, Securities 

Act Release No. 33-9570 (Apr. 3, 2014) [79 FR 19564 

(Apr. 9, 2014)]. 

249 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/investoradvisory-committee-2012/iac-general-solicitationadvertising-recommendations.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). 

250 Eliminating the Prohibition Against General 

Solicitation and General Advertising in Rule 506 and 

Rule 144A Offerings, Securities Act Release 

No. 33-9415 (July 10, 2013) [78 FR 44771 

(July 24, 2013)]. 

251 Disqualification of Felons and Other “Bad Actors” 

from Rule 506 Offerings, Securities Act Release 

No. 33-9414 (July 10, 2013) [78 FR 44729 

July 24, 2013)]. 

252 Amendments to Regulation D, Form D and Rule 156, 

Securities Act Release No. 33-9416 (July 10, 2013) 

[78 FR 44806 (July 24, 2013)]. 

253	 office of info. & regulatory affairS, office 

of mgmt. & Budget, Agency Rule List – SEC 

(Spring 2015), http://www.reginfo.gov/public/do/ 

eAgendaMain?operation=OPERATION_GET_ 

AGENCY_RULE_LIST¤tPub=true&agencyC 

ode=&showStage=active&agencyCd=3235; see also 

Regulatory Flexibility Agenda, Securities Act 

Release No. 33-9740 (Mar. 25, 2015) [80 FR 35173 

(June 18, 2015)]. 

REPORT ON ACTIVITIES: FISCAL YEAR 201 5 | 47

OFFICE OF THE 

INVESTOR ADVOCATE 

U.S. Securities and 

Exchange Commission 

100 F Street NE 

Washington, DC 20549 

202.551.3302