REPORT ON OBJECTIVES FISCAL YEAR 2017

Office of the 

Investor

 Advocate

U.S. SECURITIES AND EXCHANGE COMMISSION

OFFICE OF THE INVESTOR ADVOCATE

REPORT ON OBJECTIVES

FISCAL YEAR 2017

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

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

and Urban Affairs of the Senate and the Committee on Financial Services of the House of 

Representatives.1 A Report on Objectives is due no later than June 30 of each year, and its purpose 

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

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

Investor Advocate’s primary objectives for Fiscal Year 2017, beginning October 1, 2016.

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

of the Investor Advocate during the immediately preceding fiscal year.3 The next Report on 

Activities will be filed by December 31, 2016, and will describe the activities of the Office of the 

Investor Advocate (“Office”) during Fiscal Year 2016, covering the period from October 1, 2015 

through September 30, 2016. For Fiscal Year 2017, the activities and accomplishments of 

the Office will be reported not later than December 31, 2017.

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

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

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

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

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

REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | iii

REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | v

CONTENTS

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

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

Assisting Retail Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Identifying Areas in Which Investors Would Benefit from Regulatory Changes . . . . . . . 3

Identifying Problems with Financial Service Providers and Investment Products . . . . . . 4

Analyzing the Potential Impact on Investors of Proposed Rules and Regulations. 

Proposing Appropriate Changes to the Commission and to Congress . . . . . . . . . . . . 4

Supporting the Investor Advisory Committee. 

POLICY AGENDA FOR FISCAL YEAR 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Public Company Disclosure. 

Equity Market Structure. 

Municipal Market Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Accounting and Auditing. 

Corporate Governance. 

Fund Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

OMBUDSMAN’S REPORT. 

SUMMARY OF IAC RECOMMENDATIONS AND SEC RESPONSES. 

Mutual Fund Cost Disclosure. 

Empowering Elders and Other Investors: 

 Background Checks in the Financial Markets.. 

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

Impartiality in the Disclosure of Preliminary Voting Results. 

The Accredited Investor Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Crowdfunding. 

Decimalization and Tick Sizes   

Legislation to Fund Investment Adviser Examinations. 

Broker-Dealer Fiduciary Duty. 

Universal Proxy Ballots.  

Data Tagging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Target Date Mutual Funds.  

General Solicitation and Advertising.  

END NOTES.  
I believe our efforts to enhance the 

use of investor testing will help to 

alleviate a significant shortcoming of 

the traditional rulemaking process . . . 

unfortunately, the voices of individual 

investors and consumers tend to be 

under-represented in this process, 

even though their interests 

should be paramount.
REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 1

MESSAGE FROM THE

INVESTOR ADVOCATE

Since the creation of the Office of the Investor 

Advocate in February 2014, we have seen 

steady growth in staffing as we continue to build 

up our office and operations. We expect to begin Fiscal 

Year 2017 with 11 full-time staff, two participants in 

the SEC Pathways Program, and two contractors who 

support our work. As you can see from the contents 

of this report, these 15 individuals will be very busy 

on behalf of investors in Fiscal Year 2017.

Our work in the coming year will revolve around 

four core functions, each of which requires 

considerable effort. We will advocate for policies 

that benefit investors, conduct investor testing, help 

investors resolve problems with the SEC or selfregulatory organizations (“SROs”), and support the 

SEC’s Investor Advisory Committee.

The majority of our resources are devoted to the 

advocacy function, where we endeavor to provide 

a persuasive voice for investors in the policymaking 

process. Our statutory mandate, codified in Exchange 

Act Section 4(g)(4), requires us to analyze the 

potential impact on investors of proposed rules of 

the Commission and SROs. Accordingly, we spend 

considerable time evaluating proposed rules and 

advocating for investors, through informal means as 

well as formal recommendations.

Much of our policy work is reactive, meaning that 

we must analyze whatever rulemakings are flowing 

through the Commission and SROs at any given time. 

However, there are policy areas that are of particular 

interest to us, where we will tend to engage more 

proactively for changes that will benefit investors. We 

focus our finite resources more intently on these issues 

in hopes that we can develop deeper expertise and 

ultimately achieve the greatest impact for investors.

Our policy agenda for Fiscal Year 2017 is described in 

detail in this report. In broad terms, we will focus on 

public company disclosure, equity market structure, 

municipal market reforms, 

accounting and auditing issues, 

corporate governance, and fund 

fees and expenses.

Some items on our agenda are new 

this year. For example, we will 

begin to consider whether investors 

understand the fees and expenses 

they pay for an array of products 

and service providers, including 

funds, investment advisers, and broker-dealers. As part 

of this initiative, we will explore whether the various fees 

and expenses could be disclosed more effectively.

Other items on our agenda may appear to be static 

from year to year. For example, we will continue a 

multi-year focus on disclosure effectiveness for public 

companies. However, under that expansive topic, in 

the coming year we intend to focus more narrowly on 

the question of whether it is appropriate for disclosure 

requirements to be scaled based upon the size of the 

issuer providing the disclosure. Similarly, under the 

wider category of “equity market structure” that 

is under consideration by the Commission, we will 

focus more specifically on exchange access fees and 
rebates (“maker-taker”), as well as on disclosures that 

will help investors evaluate whether they are receiving 

best execution.

In addition, we will continue our engagement in 

reforms related to the municipal securities markets, 

with a particular focus on markup disclosure, 

pre-trade price transparency, and curtailing certain 

problematic practices. We will also examine the duties 

and disclosures of audit committees, as well as issues 

related to accounting standards, such as a proposal 

by the Financial Accounting Standards Board to 

reinterpret the definition of materiality. Our efforts 

to improve corporate governance will focus largely 

on the proxy voting process, and we will continue to 

examine the listing standards of the national securities 

exchanges with respect to shareholder approval of 

certain corporate actions.

For many of these issues, it would be useful to have 

better data to inform the policymaking process. 

Toward this end, the Office of the Investor Advocate, 

in consultation with the Division of Economic and 

Risk Analysis and other divisions and offices at the 

Commission, has begun laying the foundation for 

increased utilization of investor testing. We have 

issued a Request for Information and anticipate 

finalizing a contract with one or more vendors in 

the near term. This will give the Commission a 

variety of tools, such as surveys, A/B testing, and 

focus group testing, to evaluate the efficacy of policy 

choices or potential benefits to investors from 

proposed regulations. 

I believe our efforts to enhance the use of investor 

testing will help to alleviate a significant shortcoming 

of the traditional rulemaking process. The traditional 

process, whereby a proposed rule is published in 

the Federal Register for “public” comment, tends 

to favor those industry participants who can retain 

professionals to track rulemakings, absorb the 

hundreds of pages of complex text, and respond 

to the hundreds of questions that are posed. 

Unfortunately, the voices of individual investors 

and consumers tend to be under-represented in 

this process, even though their interests should be 

paramount. Thus, it is imperative that policymakers 

more actively seek to engage investors in order to 

properly evaluate policy options, and investor testing 

will give the Commission an opportunity to do so. 

In addition to our policy and testing work, we continue 

our efforts on the other core functions of the Office. 

The SEC Ombudsman, Tracey L. McNeil, continues 

to build the infrastructure for her office while helping 

individual investors resolve problems they may have 

with the Commission or SROs. A summary of Ms. 

McNeil’s plans and activities is set forth below in the 

Ombudsman’s Report.

Finally, we will continue to provide support services 

for the SEC’s Investor Advisory Committee in Fiscal 

Year 2017. The Investor Advocate is a statutory 

member of the Committee and participates in its 

work, and the Office of the Investor Advocate 

provides the necessary staff support to the Committee. 

This involves many tasks, including the drafting of 

meeting minutes, processing the appointments of 

new members, assisting with travel arrangements and 

reimbursements, scheduling and setting up meeting 

rooms, publishing meeting notices and agendas, and 

helping to arrange briefings by Commission staff and 

outside parties. A summary of the recommendations 

made by the Investor Advisory Committee is included 

in this report.

I am pleased to submit this Report on Objectives 

for Fiscal Year 2017 on behalf of the Office of the 

Investor Advocate, and I would be happy to answer 

any questions from Members of Congress.

Sincerely,

Rick A. Fleming

Investor Advocate 

2 | OFFICE OF THE INVESTOR ADVOCATE
REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 3

OBJECTIVES OF THE 

INVESTOR ADVOCATE

As set forth in Exchange Act Section 4(g)

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

Advocate is required to perform the 

following functions:

(A) assist retail investors in resolving significant 

problems such investors may have with the 

Commission or with SROs;

(B) identify areas in which investors would 

benefit from changes in the regulations of 

the Commission or the rules of SROs;

(C) identify problems that investors have with 

financial service providers and investment 

products;

(D) analyze the potential impact on investors 

of proposed regulations of the Commission 

and rules of SROs; and

(E) to the extent practicable, propose to the 

Commission changes in the regulations or 

orders of the Commission and to Congress 

any legislative, administrative, or personnel 

changes that may be appropriate to mitigate problems identified and to promote 

the interests of investors

ASSISTING RETAIL INVESTORS

Exchange Act Section 4(g)(4)(A) directs the Investor Advocate to assist retail investors in resolving 

significant problems such investors may have with 

the Commission or with SROs.4 To help accomplish that objective, the Investor Advocate has 

appointed an Ombudsman to, among other 

things, act as a liaison between the Commission 

and any retail investor in resolving problems that 

retail investors may have with the Commission 

or with SROs.5 The Ombudsman is also required 

to “submit a semi-annual report to the Investor

Advocate that describes the activities and evaluates 

the effectiveness of the Ombudsman” (“Ombudsman’s Report”).6

 As required by statute, the 

Ombudsman’s Report is included within this 

Report on Objectives.7

IDENTIFYING AREAS IN WHICH 

INVESTORS WOULD BENEFIT FROM 

REGULATORY CHANGES

Exchange Act Section 4(g)(4)(B) requires the Investor Advocate to identify areas in which investors 

would benefit from changes in the regulations 

of the Commission or the rules of SROs.8 This 

is a broad mandate that authorizes the Investor 

Advocate to examine the entire regulatory scheme, 

including existing rules and regulations, to identify 

those areas that could be improved for the benefit 

of investors. For example, the Investor Advocate 

may look at the rules and regulations governing 

existing equity market structure to determine 

whether any regulatory changes would benefit 

investors. Similarly, the Investor Advocate may 

review current municipal market practices to evaluate whether any changes might benefit investors. 

These and similar other concerns are discussed in 

greater detail below in the section entitled Policy 

Agenda for Fiscal Year 2017.
4 | OFFICE OF THE INVESTOR ADVOCATE

IDENTIFYING PROBLEMS WITH 

FINANCIAL SERVICE PROVIDERS AND 

INVESTMENT PRODUCTS

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

Investor Advocate to identify problems that investors 

have with financial service providers and investment 

products.9 The Investor Advocate continues to 

monitor investor inquiries and complaints, SEC and 

SRO staff reports, enforcement actions, and other 

data to determine which financial service providers 

and investment products may be problematic. As 

required by Exchange Act Section 4(g)(6), these 

problems will be described in the Reports on 

Activities to be filed in December of each year.

ANALYZING THE POTENTIAL IMPACT 

ON INVESTORS OF PROPOSED RULES 

AND REGULATIONS

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

Investor Advocate to analyze the potential 

impact on investors of proposed regulations of 

the Commission and proposed rules of SROs.10

As required, the Office reviews all significant 

rulemakings of the Commission and SROs. We 

also communicate with investors and their representatives to determine the potential impact of 

proposed rules.

PROPOSING APPROPRIATE 

CHANGES TO THE COMMISSION AND 

TO CONGRESS

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

to the extent practicable, the Investor Advocate 

may propose to the Commission changes in the 

regulations or orders of the Commission and 

to Congress any legislative, administrative, or 

personnel changes that may be appropriate to 

mitigate problems identified and to promote the 

interests of investors.11 As we study the issues in 

our Policy Agenda for Fiscal Year 2017, as set forth 

below, we will likely make recommendations to the 

Commission and Congress for changes that will 

mitigate problems encountered by investors.

SUPPORTING THE INVESTOR 

ADVISORY COMMITTEE

Exchange Act Section 39, as amended by Section 

911 of the Dodd-Frank Act, establishes the Investor 

Advisory Committee (“IAC” or “Committee”).12

As discussed in greater detail below in the section 

entitled Summary of IAC Recommendations and 

SEC Responses, the purpose of the Committee is to 

advise and consult with the Commission on regulatory priorities, issues impacting investors, initiatives 

to protect investors, and related matters. By statute, 

the Investor Advocate is a member of the IAC.13 In 

addition, the Office continues to provide staff and 

operational support to the IAC.
REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 5

POLICY AGENDA FOR 

FISCAL YEAR 2017

As described above, the statutory mandate 

for the Office of the Investor Advocate is 

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

through the Commission and SROs. We monitor 

all rulemakings, but we prioritize certain issues 

so that we can develop expertise in those areas 

and maximize our impact for investors with the 

resources we have available. After discussions with 

numerous knowledgeable parties, both inside and 

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

the Office will focus upon the following issues 

during Fiscal Year 2017:

• Public Company Disclosure

• Equity Market Structure

• Municipal Market Reform

• Accounting and Auditing

• Corporate Governance 

• Fund Fees and Expenses

Undoubtedly, other issues will arise that require the 

attention of the Office, but these issues will remain 

on our policy agenda.

PUBLIC COMPANY DISCLOSURE

Disclosure is a cornerstone of the securities laws 

and the capital markets. Before a company sells 

securities, it must disclose all material facts to prospective investors so they can make fully informed 

decisions about purchasing the securities. Public 

companies must then provide ongoing disclosure 

so that investors have access to the information 

they need to vote as shareholders or to buy and sell 

securities in the secondary markets. 

For a company issuing securities, Regulation S-K 

sets forth the information that must be disclosed 

about the business and its operations.14 Regulation 

S-X sets forth the requirements for the format and 

content of the company’s financial statements.15

Typically, a company issuing new securities must 

file all of the required information in a particular 

format using either Form S-1 or an alternative 

form, and public companies are required to provide 

ongoing periodic disclosure using Forms 10-K, 

10-Q, and others.

Given the important role of disclosure, the requirements for various types of disclosure are robust. 

As a result, an S-1 or 10-K can be hundreds of 

pages long, and the length and complexity of the 

disclosures has led many to question whether the 

disclosure requirements are properly calibrated to 

effectively communicate all material information to 

investors while eliminating immaterial, outdated, 

or duplicative data that may dilute the impact of 

the more meaningful disclosures. 

This question has been an area of focus for the 

Commission in recent years. In December 2013, 

the Commission issued the Report on Review of 

Disclosure Requirements in Regulation S-K (“S-K 

Report”), a report mandated by Congress under 

the Jumpstart Our Business Startups Act (“JOBS 
6 | OFFICE OF THE INVESTOR ADVOCATE

Act”).16 The S-K Report describes the evolution of 

the disclosure requirements within Regulation S-K 

and recommends a reevaluation of those disclosure 

requirements. On April 11, 2014, the SEC’s Division of Corporation Finance announced a disclosure 

reform initiative that built upon the S-K Report.17

Since then, the Commission has released two significant requests for comment. On October 1, 2015, 

the Commission published a Request for Comment 

on the Effectiveness of Financial Disclosures About 

Entities Other Than the Registrant, which solicited 

feedback about a subset of the requirements under 

Regulation S-X (“S-X Request for Comment”).18

Then, on April 22, 2016, the Commission published 

for comment a Concept Release regarding Business 

and Financial Disclosure Required by Regulation 

S-K (“S-K Concept Release”), with comments due 

by July 21, 2016.19 

As we have in the past, the Office of the Investor 

Advocate will monitor the developments in this 

area and provide a voice for investors as potential 

reforms are contemplated by the Commission. There 

are myriad issues that we will examine in this process, but in Fiscal Year 2017 we will spend considerable time and effort in three particular areas: investor 

outreach, structured data, and scaled disclosure.

Investor Outreach

The S-X Request for Comment is 35 pages long, 

and it asks the public to answer 58 questions.20

During the 60-day comment period, the Commission received 49 comment letters, but only two 

letters appear to be submitted by individual 

investors.21 The S-K Concept Release is 341 

pages long and asks 340 questions,22 and unfortunately, we anticipate a similar response rate from 

actual investors. 

For several reasons, it seems unrealistic to expect 

individual investors to participate in the “public” 

comment process. The average person has little or 

no awareness of rule proposals at the SEC, and 

even highly engaged investors would struggle to 

find the time to read 341 pages and submit meaningful comments to 340 questions. Moreover, 

issuers of securities and their representatives have 

strong incentives to comment about proposed disclosure rules that may impact them in a significant 

way, but individual investors have little incentive to 

comment because the impact on individual investors is broadly dispersed.

To counteract this structural imbalance in the 

public comment process, the Office of the Investor 
REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 7

Advocate will enhance our engagement with investors in Fiscal Year 2017. This will include individuals 

who invest for themselves, as well as the individuals 

who make the actual buy and sell decisions on behalf 

of institutional investors such as mutual funds and 

pension funds. We will attempt to determine what 

investment strategies are used, what sources of information and data are relied upon (including the SEC’s 

EDGAR system), and what data points are most useful and least useful for their purposes. This outreach 

will inform our thinking about ways to enhance the 

effectiveness of disclosure for actual users of the 

data, and we will share our insights with policymakers. In addition, this information will help us formulate investor testing initiatives that will provide more 

extensive and reliable data about investor behavior. 

Structured Data

In our view, while debates about the content of 

disclosure are worthwhile, a more important issue 

is the delivery of the disclosure. We believe technology is the key to enhancing the effectiveness of 

disclosure for investors while reducing the burdens 

to issuers who must provide the disclosure.23 Thus, 

we will continue to encourage Commission staff to 

adopt user-friendly technologies that will allow 

for the layering of information so that investors 

will immediately see the most important information and have the capability to drill down for 

greater detail.

It is also important to keep in mind that every 

investor benefits from disclosure, even if the investor does not read a word of it. This is because the 

disclosure performs an important price-setting 

function in the markets, as sophisticated buyers and 

sellers of securities digest all material information 

to decide whether to buy or sell at a given price. For 

this price-setting mechanism to function efficiently, 

analysts and other market participants must have 

ready access to all available material information.

To improve the accessibility of disclosure for 

sophisticated users, the Commission has taken significant strides to increase the use of structured data 

for public company filings.24 However, more can 

be done to enhance its accuracy and give users better 

tools to mine the data.25 Chair Mary Jo White has 

acknowledged this potential, and at a public meeting 

on April 13, 2016, she announced the creation of 

a dedicated working group to address the “manner 

of delivery” that is needed to achieve modern and 

efficient disclosure.26 At her invitation, the Office 

of the Investor Advocate will participate in the 

working group.

Scaling of Disclosure Requirements

Frequently, lawmakers and regulators are faced 

with the question of whether to “scale” regulations so that smaller companies are required 

to satisfy fewer requirements. On its face, this 

appears to be an appealing way to help smaller 

businesses by reducing the costs and burdens of 

regulatory requirements.

We believe the trend toward scaling presents a 

significant risk to investors and deserves much 

closer examination. During FY 2017, we will begin 

to explore this issue in greater depth. For example, 

we will examine whether the existing disclosure 

requirements are already inherently less onerous 

for smaller companies because certain disclosures, 

while technically required, are not applicable to 

smaller companies or require less explanation. 

We will also consider whether smaller companies 

carry higher risks of default or investor losses, 

which would suggest that the value of disclosure 

is actually higher for investors in these companies. 

By exploring these and related questions, we will 

attempt to provide a more complete set of facts to 

policymakers who are considering whether to scale 

disclosure requirements.

EQUITY MARKET STRUCTURE

As noted in the last two years’ Reports on Objectives, the secondary market for U.S.-listed equities 

has become dispersed and complex, partly as a 

result of the decades-long transition from a market 
8 | OFFICE OF THE INVESTOR ADVOCATE

structure dominated by manual trading to a market structure characterized primarily by automated 

trading.27 The evolution of technologies for generating, routing, and executing orders has enhanced the 

speed, capacity, and sophistication of the trading 

functions that are available to market participants,28

and trading centers are offering a wide range of 

services designed to attract different types of market 

participants with varying trading needs.29 In addition, 

regulatory actions have also contributed to changes 

in equity market structure—for example, Regulation 

NMS (adopted in 2005),30 Regulation ATS (adopted 

in 1998),31 the Order Handling Rules (adopted in 

1996),32 and certain enforcement actions. 

In particular, the equity market has evolved significantly since the adoption of Regulation ATS. Regulation ATS addressed the regulatory disparity between 

registered national securities exchanges and nonexchange markets at the time. It sought to encourage 

market innovation while ensuring basic investor 

protections on trading venues meeting the definition 

of an alternative trading system (“ATS”).33

Since the adoption of Regulation ATS, ATSs have 

emerged as a significant source of liquidity in 

national market system (“NMS”) stocks and now 

compete with, and operate with similar complexity 

and sophistication as, registered national securities 

exchanges. Around 35 percent of market volume in 

exchange-listed stocks is executed in dark ATSs and

other broker-dealer platforms, rather than on lit 

venues like the New York Stock Exchange.34

These dark venues are not currently required to disclose their rules of operation to their customers or the 

public, and they typically only provide limited information about how they operate.35 Some recently settled 

enforcement actions against ATSs that trade NMS 

stocks highlight the lack of disclosure concerning their 

operation and the operators’ conflicts of interest.36

On November 18, 2015, the Commission proposed amending Regulation ATS to enhance the 

operational transparency of venues that trade listed 

equity securities.37 Greater information about the 

operation of these venues could allow sophisticated 

investors to better compare the trading venues and 

determine which venues and order routing products 

meet their trading needs. Our Office has monitored 

the public comment process and evaluated the 

proposal’s potential impact on investors, and we 

expect to make a recommendation to the Commission prior to FY 2017. We will continue to advocate 

for greater transparency in FY 2017 if the Commission does not finalize its proposal during the current 

fiscal year.

In addition to the changes brought about by 

Regulation ATS, the equity market has also evolved 

significantly in response to Regulation NMS, which 

was intended to modernize and strengthen the 

regulatory structure of the U.S. equity markets.38

The Commission is evaluating Regulation NMS as 

part of a comprehensive review of equity market 

structure, and several SROs and market participants 

have joined the public discussion regarding reforms 

that might benefit investors. 

The Commission’s Equity Market Structure Advisory Committee (“EMSAC”), formed in early 

2015, has now met several times over the last year 

to discuss and debate the structure and operations 

of the U.S. equities market.39 Under its charter, the 

EMSAC provides advice and recommendations 

to the Commission specifically related to equity 

market structure issues.40 The EMSAC is currently 

considering various potential market structure 

reforms involving Regulation NMS,41 including 

Rule 610, which relates to the access fees that trading venues can charge to participants, and other 

matters concerning self-regulation, market quality, 

and customer issues. 
REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 9

Regulation NMS Rule 610—

Recommendation for Access Fee Pilot

The payment model known as “maker-taker” 

originated with electronic trading venues in the late 

1990s.42 As detailed in a recent Commission staff 

white paper, these nascent alternatives to registered 

exchanges competed by, among other things, charging low fees while offering fast and fully automated 

trading.43 Paying rebates for trading on a venue 

provided an additional incentive for traders to use 

the venue—it was additional income beyond the 

spread between the bid and offer prices.44

Due to competitive pressure over time, many exchanges and non-exchange markets have adopted 

similar fee structures to attract order flow incentivized 

to provide competitive prices.45 In other words, such 

venues typically pay rebates to their members to 

encourage them to place resting, or liquidity-providing, orders on their trading systems at the best price. If 

an execution occurs, the liquidity-providing “maker” 

receives a rebate, and the “taker” that executes 

against that resting order pays a fee to the trading 

venue which is used to cover the cost of the rebate.46

In part enshrined by Rule 610 of Regulation NMS, 

which sets a maximum access fee cap for “takers” 

on equity exchanges, this maker-taker fee model has 

been the subject of debate over the effects it may 

have on market structure, broker routing practices, 

and investor interests.47 Some believe the makertaker model is a competitive tool for exchanges and 

may, directly or indirectly, provide better prices for 

investors. Others believe that it exacerbates conflicts 

of interest for brokers who have a legal duty to seek 

best execution of their customers’ orders, contributes to market fragmentation and market complexity through the proliferation of new exchange order 

types, and undermines price transparency.48

On April 26, 2016, the EMSAC discussed a framework by which the Commission could conduct a 

pilot program related to maker-taker access fees on 

equity exchanges.49 Following debate, the EMSAC 

committed to have one of its subcommittees refine 

the framework and, after a public meeting and 

vote, to likely recommend that the Commission 

move forward with a pilot to gather data on overall 

market quality and participant behavior that would 

result from a reduction in trading venue access 

fee caps for takers of liquidity and, presumably, a 

reduction in the corresponding rebates for makers 

that submit resting orders.50

During the discussion of the proposal on April 26, 

representatives of national securities exchanges suggested that the access fee pilot program should also 

test whether a “trade-at” rule could serve investors 

by further encouraging the display of limit orders on 

exchanges.51 Generally, a “trade-at” rule would prohibit any trading center, including ATSs and internalizing brokers, from executing a trade at the national 

best bid or offer (“NBBO”) unless that center was 

also displaying that price at the time.52 Such a rule 

would, in effect, require dark trading centers to 

either provide significant price improvement to the 

order or route the order to a venue that was publicly 

displaying the NBBO, likely a national securities 

exchange in today’s market.53 Proponents suggest 

that such a rule would promote pre-trade public 

price discovery by preventing the diversion of a significant volume of valuable marketable order flow to 

undisplayed trading centers. Opponents suggest that 

the varying needs of investors may be better served 

with the current level of fragmentation, including 

among dark pools, rather than forcing orders to 

execute on the public exchanges.

Our Office will review the EMSAC recommendation, if adopted, and will likely support the 

implementation of a pilot program. We will carefully consider whether the proposed elements of 

the pilot, including a potential trade-at test, will 

provide the Commission with the most useful data 

for evaluating potential equity market structure 

reforms. Ultimately, we will consider whether 
10 | OFFICE OF THE INVESTOR ADVOCATE

lowering these fees and rebates on a permanent 

basis will improve market quality for investors.

Regulation NMS Rules 605 and 606— 

Enhancements to Execution Quality and 

Order Routing Information 

Separately from Rule 610 and access fees, recent 

debate over order routing between trading venues has involved a discussion of the limitations of 

current Rule 606 of Regulation NMS. Rule 606 

requires some public disclosure of broker order 

routing practices, but it does not cover the large 

orders typically used by institutional investors.54

One way to address this gap would be to amend the 

rule to require disclosure of the customer-specific 

information that a broker is expected to provide to 

each institutional customer on request. While some 

brokers already voluntarily provide some of this 

information, a rule could ensure that the disclosed 

information is useful, reliable, and uniformly available on request to all institutional customers.

An industry working group, including the Investment Company Institute (“ICI”), the Managed 

Funds Association (“MFA”), and the Securities 

Industry and Financial Markets Association 

(“SIFMA”), has developed a recommended template for the minimum disclosure of order routing 

and execution quality information (part of the 

related Rule 605 of Regulation NMS) that brokerdealers would provide, upon request, to institutional customers.55 The disclosure template would 

provide a broad range of statistical data regarding 

the broker’s handling of a specific customer’s 

orders, along with the execution quality achieved 

by the broker at each venue. 

Chair White has asked staff to prepare a recommendation to the Commission for a rule that would 

enhance order routing disclosures.56 We understand that the Division of Trading and Markets is 

working toward that goal, and that they may soon 

recommend amendments to Rules 600 and 606 in 

order to standardize and increase transparency for 

institutional customers with regard to how brokerdealers route their order flow.57

In Fiscal Year 2017, the Office of the Investor 

Advocate will monitor public comments, review 

data, and otherwise assess the various ongoing 

initiatives involving equity market structure. We 

will evaluate how individual and institutional investors may be affected by various regulatory proposals, including any proposed changes to Rules 605 

and 606 under Regulation NMS. We will consider 

whether disclosing trade venue routing and the 

quality of execution services could adequately 

address market complexity, or whether even more 

prescriptive measures are needed.

MUNICIPAL MARKET REFORM

According to Federal Reserve Board estimates, the 

value of outstanding municipal bonds increased 

from approximately $3.65 trillion at the end of the 

fourth quarter of 2014 to $3.71 trillion at the end 

of the fourth quarter of 2015.58 Approximately 41 

percent of outstanding municipal bonds were held 

directly by individual investors as of December 31, 

2015, and another 29 percent were owned indirectly

by retail investors through mutual funds, money 

market funds, or closed end funds and exchangetraded funds.59 In its 2015 Fact Book (“MSRB Fact 

Book”), the Municipal Securities Rulemaking Board 

(“MSRB”) observed that, while the par amount 

of customer transactions (purchases and sales) in 

municipal securities has steadily decreased every year 

since 2011, the same is not true of the number of 

customer transactions.60 Also, despite its traditional 

characterization as a “buy-and-hold” market, significant secondary market trading occurs in municipal 

securities markets.61

As these statistics indicate, municipal securities 

continue to be prevalent in individual investor portfolios and may constitute an increasingly important part of investors’ retirement plans. Municipal 

securities also provide funding for critical state and 

local projects. The growing size and importance of 
REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 11

the municipal securities market vis-à-vis individual 

investors makes investor protection and advocacy 

in this space necessary. The Office of the Investor 

Advocate highlighted municipal market reform as 

part of its policy agenda in fiscal years 2015 and 

2016 and such reform will remain on the Office’s 

Fiscal Year 2017 agenda.62

The Commission’s July 31, 2012, Report on the 

Municipal Securities Market (“Municipal Market 

Report”) identified disclosure and market structure 

as two key areas of concern in municipal markets.63

Since the Municipal Market Report was issued, 

some progress has been made to address certain 

issues in these areas.64 For example, in the area of 

municipal market structure, the Municipal Market 

Report recommended the MSRB “consider a rule 

that would require municipal bond dealers to seek 

‘best execution’ of customer orders for municipal 

securities.”65 The MSRB’s best execution rule took 

effect on March 21, 2016.66

In Fiscal Year 2017, the Office of the Investor 

Advocate will continue to work with Commission 

staff and the relevant SROs to encourage municipal securities market reforms designed to benefit 

investors. The Office may participate in the public 

comment process to help ensure that the interests of 

investors are given due consideration and appropriate weight as rules are being considered by both the 

Commission and relevant SROs.67 In particular, we 

expect to advocate for markup disclosure, greater 

pre-trade price transparency, and for reforms to 

combat certain problematic practices in the municipal securities market. 

Markup Disclosure

A markup is the remuneration received by a dealer 

when selling municipal securities as principal to a 

customer.68 In general, the markup is the differential 

between the prevailing market price of a municipal 

security at the time the dealer sells it to the customer and the higher price paid by the customer to the 

dealer.69 One study estimated that between 2005 

and 2013, excessive markups and markdowns paid 

by municipal market investors “likely substantially 

exceed[ed] $10 billion.”70

Broker-dealers are required to provide retail 

customers with confirmation statements following fixed income transactions.71 However, under 

current industry practices, confirmation statements 

provided to retail customers typically provide no 

more than the price that the customer paid or 

received for the fixed income security. As a result, 

retail investors seldom receive clear disclosure of a 

dealer’s markup or markdown.72 In fact, investors 

may not be aware that they pay a markup at all.

The Municipal Market Report recommended that 

bond dealers be required to disclose any markup 

or markdown information to customers.73 In 2014, 

the MSRB and the Financial Industry Regulatory 

Authority (“FINRA”) began working to require 

such disclosure, and in 2015, they issued for public 

comment a second request related to requiring 

markup or markdown disclosure.74 The Municipal 

Market Report also suggested that the MSRB consider issuing detailed interpretive guidance to assist 

bond dealers in establishing the “prevailing market 

price.”75 On February 18, 2016, the MSRB issued 

a request for comment on its proposed prevailing 

market price guidance. 

The Office of the Investor Advocate commented 

on several MSRB and FINRA proposals during FY 

2016. In the coming year, we will continue to monitor municipal market structure initiatives such as 

best execution and actively participate in ongoing 

rulemaking proposals such as markup or markdown disclosure.

Pre-Trade Price Transparency

Municipal securities market participants have 

varying degrees of access to pre-trade pricing information.76 Bond dealers and larger institutional 
12 | OFFICE OF THE INVESTOR ADVOCATE

investors tend to have greater access while retail 

investors and smaller institutional investors may 

have access to very little pre-trade information and 

generally have limited knowledge or resources to 

obtain such information.77 Further, the existence 

of so many unique bonds and the decentralized, 

over-the-counter dealer market inhibit pre-trade 

price transparency by creating an opaque secondary market and making it prohibitively difficult for 

retail investors to independently identify participants 

interested in buying or selling a municipal security 

and the prices they are willing to pay or receive.78

The Municipal Market Report recommended 

steps that could be taken to create a level playing 

field between individual investors and large institutional investors and ways to disseminate pre-trade 

price information to individual investors. Specifically, the Municipal Market Report recommended 

the following:

• The Commission could consider amendments to Regulation ATS to require an ATS 

with material transaction or dollar volume in 

municipal securities to publicly disseminate 

its best bid and offer prices and, on a delayed 

and non-attributable basis, responses to “bids 

wanted” auctions; and 

• The MSRB could consider rules requiring a 

brokers’ broker with material transaction or 

dollar volume in municipal securities to publicly 

disseminate the best bid and offer prices on any 

electronic network it operates and, on a delayed 

and non-attributable basis, responses to “bids 

wanted” auctions.79

Problems in the municipal securities market are 

often complex and difficult to solve. However, the 

lack of pre-trade price transparency may lie at the 

root of many issues related to secondary trading 

within the market.80 Thus, in Fiscal Year 2017, we 

will monitor Commission and SRO efforts with 

respect to pre-trade price transparency. We will continue to explore ways to improve pre-trade transparency and make recommendations as appropriate. 

Problematic Practices

In October 2015, the MSRB identified three areas 

of particular concern to investors in municipal securities markets—timeliness of continuing disclosures, 

lack of bank loan disclosures, and trades below 

the minimum denomination.81 The Office of the 

Investor Advocate briefly discussed these problematic practices within our most recent Report on 

Activities,82 and we will continue to assess potential 

solutions during FY 2017.

Problematic practices within each of these areas 

may have adverse effects on retail investors in 

municipal market securities. For example, a 

municipality’s debt-like obligations such as bank 

loans may be a very important factor for an investor 

who is deciding whether to invest in the bonds of 

that municipality, but bank loans are rarely disclosed 

to investors or the disclosure is delayed.83 In addition, municipal bonds may trade below minimum 

denomination thresholds to the detriment of investors.84 Minimum denominations are established to 

help ensure that higher risk municipal securities are 

sold only to those investors who are able to make 

larger investments and bear the associated risk. 

Sometimes, investors may hold below minimum 

denomination positions for legitimate reasons, 

including, for example, call provisions allowing 

calls in amounts below the minimum denomination, investment advisers splitting positions among 

several clients, death, and divorce.85 However, some 

minimum denominations may be created in violation of the acceptable threshold amount, and several 

municipal securities dealers have been sanctioned for 

this practice in recent years.86
REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 13

Since identifying these potentially problematic 

practices, the MSRB has begun to address them. 

Specifically, on March 28, 2016, the MSRB published a Regulatory Notice requesting comment on 

a concept proposal relating to disclosure of bank 

loan information.87 In addition, on April 7, 2016, 

the MSRB published a Regulatory Notice requesting comment on an amendment to MSRB Rule 

G-15(f) on minimum denominations.88 The Office 

of the Investor Advocate generally supports reforms 

of this nature, and we will continue to participate 

in the public dialogue surrounding these topics. 

ACCOUNTING AND AUDITING

High-quality financial reporting is critically important to investors for their investment and voting 

decisions. It is therefore important for the Office 

of the Investor Advocate to track accounting and 

auditing issues, to give a voice to the needs of investors in the policymaking process, and to encourage 

investors themselves to express their views.

In the coming fiscal year, we will be monitoring 

issues involving audit committee disclosures, the 

auditor’s report, the Financial Accounting Standards Board (“FASB”) approach to materiality, and 

the overuse of non-GAAP measures.

Audit Committee Disclosures and the 

Auditor’s Report

On July 1, 2015, the Commission published a 

concept release on audit committee disclosures, 

focusing on the committee’s oversight of independent auditors.89 The concept release invited public 

comments on whether audit committee disclosures 

should provide more insight into the information 

the audit committee used and the factors it considered in overseeing the independent auditor. This 

includes considerations related to the process for 

appointing or retaining the auditor and the qualifications of the auditor and certain members of the 

engagement team. Commission staff is currently 

evaluating the comment letters received, which 

numbered more than 100.

On May 11, 2016, the Public Company Accounting 

Oversight Board (“PCAOB”) voted to re-propose 

for public comment the audit reporting standard,90

originally proposed in 2013.91 The PCAOB stated 

that its goal is to make the auditor’s report more 

informative to investors and other financial statement users.92 Among other things, the proposal 

calls for an expansion of the auditor’s report to 

include a discussion of critical accounting matters.

Both the audit committee report and the auditor’s 

report are critical to the framework of financial 

reporting. Enhancements to either report would be 

of major significance to investors.

FASB and the Materiality Standard

In September 2015, FASB issued a pair of proposals related to materiality that have generated a 

high level of controversy among some investors.93

The first of FASB’s twin proposals would apply 

to the conceptual framework that FASB uses as a 

guide in its own decision-making process.94 This 

proposal, according to FASB, would clarify that the 

concept of materiality was not intended to conflict 

with the legal definition.95 The second proposal 

was an Accounting Standards Update that FASB 

said was intended to clarify how companies and 

not-for-profit entities consider materiality in notes 

to the financial statements.96

According to FASB, the amendments are not 

intended to change any specific disclosure requirements, but will help entities omit non-material 

disclosures and focus instead on relevant, material 

information.97 However, despite these assurances, 

several investors and interested parties have 

expressed concerns that the changes would allow 

issuers to reduce their level of financial reporting 

and their transparency to investors. The SEC 

Investor Advisory Committee weighed in with a 

letter to FASB expressing its concerns.98

FASB officials have indicated that they will hold a 

public roundtable later this year before making any 
14 | OFFICE OF THE INVESTOR ADVOCATE

further decisions on the twin proposals. Our Office 

will monitor developments closely and prepare to 

advocate for the best interest of investors as these 

proposals are considered.

Overuse of Non-GAAP Measures

In the past half-year, senior officials of the Commission have expressed concern over issuers’ increasing 

use of non-GAAP measures. For example, in March 

2016, SEC Chief Accountant James V. Schnurr stated:

The SEC staff has observed a significant and, 

in some respects, troubling increase over the 

past few years in the use of, and nature of 

adjustments within, non-GAAP measures by 

companies as well [as the] prominence that 

the analysts and media have accorded such 

measures when reporting on the results of 

the companies they cover.99

The Chief Accountant urged corporate management and audit committees to increase their focus 

on the issue—going beyond determinations of 

compliance to include “probing questions on why, 

in contrast to the GAAP measure, the non-GAAP 

measure is an appropriate way to measure the company’s performance and is useful to investors.”100

Chair White, in a keynote speech to the 2015 

American Institute of CPAs (“AICPA”) National 

Conference, suggested what some of those probing 

questions should be: 

Why are you using the non-GAAP measure, 

and how does it provide investors with useful 

information? Are you giving non-GAAP 

measures no greater prominence than the 

GAAP measures, as required under the rules? 

Are your explanations of how you are using 

the non-GAAP measures—and why they 

are useful for your investors—accurate and 

complete, drafted without boilerplate? Are 

there appropriate controls over the calculation of non-GAAP measures?101

SEC Commissioner Kara M. Stein has also called 

attention to the increasing use of non-GAAP measures 

in communications to investors, such as earnings 

releases and the management discussion and analysis 

(“MD&A”) sections of annual reports, which fall 

outside of the financial statements themselves. Commissioner Stein noted that the trend to make customized adjustments to GAAP financial measures has 

been termed “earnings before bad stuff.”102

Commission staff have demonstrated a heightened awareness of this issue. According to Chief 

Accountant Schnurr, staff from the Division of 

Corporation Finance regularly issue comments on 

this issue and will be vigilant in reviewing the use of 

such measures going forward.103 SEC Deputy Chief 

Accountant Wesley R. Bricker reiterated that point 

in a speech on May 5, 2016. He stated that if companies “present adjusted revenue, you will likely get 

a comment; moreover, you can expect the staff to 

look closely, and skeptically, at the explanation as 

to why the revenue adjustment is appropriate.”104

In short, it appears that staff is prepared to address the 

excessive use of non-GAAP metrics through enhanced 

oversight. We will continue to follow this issue closely, 

and in particular, we will consider whether rulemaking is needed to clarify the law or enhance the Commission’s ability to deter abusive practices.

CORPORATE GOVERNANCE

In the coming year, we will consider issues involving shareholder rights and corporate governance. 

We will look for ways to remove any obstacles to 

shareholders in voting proxies and to protect shareholder rights in submitting and voting on shareholder proposals. We will also consider whether 

proposed changes to exchange listing standards 

adequately protect the interests of public shareholders, including those that require listed companies to 

provide shareholders a voice in corporate actions 

that significantly impact their interests.
REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 15

Universal Ballots 

In a contested board election, a slate of candidates 

backed by the company’s current management is 

challenged by a slate of candidates backed by one 

or more shareholder proponents (sometimes called 

dissidents). Shareholders voting in person are able 

to choose from among candidates on both slates.105

Shareholders voting by proxy, however, generally 

face a binary, either-or choice: they can vote either 

for the entire slate of management candidates, or 

for the entire slate of proponent candidates, but 

they cannot freely mix and match candidates from 

both slates.106

This result flows from what Commissioner Stein 

has described as “the strange confluence of federal 

and state law.”107 State law generally provides that 

any new proxy will revoke any previously given 

proxy. Thus, if a shareholder submits more than 

one proxy, only the last one is given effect.108 This 

precludes a shareholder from sending in two proxies as a way of voting for a combination of management and dissident nominees.109 Theoretically, 

if the names of nominees from the opposing slates 

all appeared on a single “universal” proxy ballot, 

shareholders could freely pick candidates from 

both management and proponents slates.110 Federal 

proxy rules, however, do not require the use of a 

universal proxy ballot. 

Other rules present significant practical barriers 

to the use of a universal proxy ballot. Under what 

is called the bona fide nominee rule, a proxy card 

can list only the names of those director nominees 

who have consented to having their names appear 

on that particular proxy card and who have agreed 

to serve if elected.111 Almost without exception, 

candidates withhold that consent for their names to 

appear on the opposing proxy card.112

If the proponents put forward a minority slate, or 

short slate, rather than seeking majority control of 

the board, they can round out their slate with some 

of the management nominees. (The proponents’ 

proxy card identifies the management candidates 

whom the proponents will not vote for, thus implying 

that they will vote for the rest of management’s slate 

without actually naming them.) In this case, however, 

a shareholder voting for the proponents’ proxy card 

does not freely pick which management nominees 

to support. Instead, it is the proponent who decides 

which management nominees the shareholders using 

the proponent card must support.113

To address this issue, some advocates have called 

for the Commission to engage in rulemaking to 

facilitate universal proxies in which all candidates 

from both the management and proponent sides 

appear on a single ballot.114 In 2013, for example, 

the Investor Advisory Committee recommended 

that the Commission explore changes to the proxy 

rules that would give proxy contestants the option, 

but not the obligation, to use universal ballots in 

connection with short slate director nominations.115

In January 2014, the Council of Institutional Investors submitted a rulemaking petition requesting 

that the Commission facilitate the use of universal 

proxy cards in contested elections.116

To explore these issues in greater depth, the Commission held a Proxy Voting Roundtable in February 2015.117 Then, in a speech on June 25, 2015,118

Chair White stated that she had asked the staff to 

bring appropriate rulemaking recommendations 

before the Commission on universal proxy ballots.119

In Fiscal Year 2017, we will continue to study this 

issue and monitor relevant developments at the 

Commission. We will advocate for improvements 

to the voting process that will more effectively serve 

the needs of shareholders.

Shareholder Proposals

Exchange Act Rule 14a-8 allows a shareholder 

who holds voting shares worth at least $2,000 (or 

one percent of the voting shares, whichever is less) 
16 | OFFICE OF THE INVESTOR ADVOCATE

to submit a proposal for a vote of the other shareholders using the company’s proxy statement.120

The proposal may recommend or require the 

company to take a certain course of action.121 The 

company is required to include such a proposal in 

the company’s proxy materials unless the company 

demonstrates to the Commission that it is entitled 

to exclude the proposal for one of the procedural 

or substantive reasons set forth in the rule.122 Every 

year, Commission staff receive approximately 300 

to 400 requests for assurance that the Commission 

will take no enforcement action against a company 

if the company were to exclude a shareholder proposal under one of the exceptions in Rule 14a-8.123

Our Office follows developments during each 

proxy season, especially if issues arise that substantively affect the rights of shareholders. One such 

issue arose in 2014 in connection with Exchange 

Act Rule 14a-8(i)(9), which allows a company to 

exclude a shareholder proposal that “directly conflicts” with one of the company’s own proposals.124

A review of the issues surrounding the use of this 

exclusion eventually led the Division of Corporation Finance, on October 22, 2015, to issue Staff 

Legal Bulletin No. 14H,125 and we believe the SLB 

has significantly enhanced shareholder rights. 

During FY 2017, we will continue to monitor 

developments in shareholder proposals and make 

recommendations as appropriate.

Exchange Listing Standards Regarding 

Shareholder Approval

The Exchange Act requires, in relevant part, that 

the rules of a national securities exchange be 

designed, in general, to protect investors and the 

public interest.126 Accordingly, the original listing 

standards of an exchange for a public company 

should be designed to protect financial markets and 

the investing public. For a new issuer, listing on an 

exchange provides an environment that, in comparison to being quoted in over-the-counter markets 

or remaining privately held, offers the potential for 

enhanced liquidity, transparency, and oversight for 

the issuer’s equity security. These benefits also flow 

to investors. Thus, we generally support efforts 

to help companies become or remain listed on 

exchanges under appropriate circumstances. 

The development and enforcement of adequate 

standards governing the initial listing and maintenance of listing of securities is an activity of critical 

importance to financial markets and the investing 

public.127 Listing standards serve as a means for a 

marketplace to screen issuers and to provide listed 

status only to bona fide companies with sufficient 

float, investor base, and trading interest to maintain 

fair and orderly markets.128 In addition to those 

quantitative standards, qualitative requirements, 

such as audit committees, independent director 

oversight of executive compensation, a mandatory 

code of conduct, shareholder meetings (including 

proxy solicitation and quorum), review of related 

party transactions, shareholder approval (including 

voting rights), and disclosure policies should be 

designed to help ensure that companies trading 

on a national securities exchange will adequately 

protect the interests of public shareholders.129

Among the qualitative listing standards, exchangelisted companies are generally required to obtain 

shareholder approval prior to certain corporate 

actions, such as the issuance of additional shares 

under certain circumstances. For example, the current shareholder approval rules for the NASDAQ 

Stock Market (“NASDAQ”) generally require 

companies to obtain approval from shareholders prior to issuing securities in connection with 

certain acquisitions, equity-based compensation 

plans, changes of control, and certain private 

placements.130 Our Office has become concerned 

about a potential “race to the bottom” by the 

exchanges, whereby they lower either quantitative 

or qualitative listing standards in order to attract 

more companies to list with them, potentially to the 

detriment of the market and shareholders. 
REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 17

In particular, we have observed several troubling 

signs with respect to qualitative listing standards 

that would otherwise require shareholder approval 

for certain corporate actions. Recent proposals 

by the New York Stock Exchange (“NYSE”) and 

NASDAQ suggest that this crucial shareholder 

protection could be threatened.

In May 2015, the NYSE proposed to exempt 

certain early stage companies from a requirement 

to seek shareholder approval before issuing up to 

20 percent of outstanding shares to certain related 

parties, provided that the company’s audit committee or a comparable board committee approves the 

transaction.131 Our Office opposed the proposed 

rule change because, in our view, it was yet another 

incremental step in a more disturbing trend.132

However, the Commission ultimately approved the 

rule in December 2015, in part because NASDAQ’s 

own listing standards already presented a lower 

standard.133

In November 2015, NASDAQ issued a request for 

comment broadly asking whether its shareholder 

approval rules continue to serve their original 

shareholder protection purpose and otherwise still 

‘make sense’ given the evolution in the capital markets and securities laws since the rules’ adoption in 

1990.134 In February 2016, our Office submitted a 

comment letter arguing that shareholder approval 

constitutes an important element in the corporate 

governance framework that helps protect investors 

and builds trust in markets and that any reduction 

or elimination of shareholder approval requirements could have a significant negative impact on 

investor protections.135 We expressed concern that 

board or independent committee approval may not 

be an effective substitute for approval by shareholders, whose interests are directly impacted by 

economic and ownership dilution, and that lowering NASDAQ’s qualitative listing standards could 

exacerbate the “race to the bottom.” 

We continue to review historical patterns in the 

rulemakings of the other exchanges and the behavior of market participants under those rules, but 

our research of NYSE rulemakings suggests that 

the listing standards of the NYSE have gradually 

deteriorated since 2005, particularly with respect 

to their quantitative listing standards, but also with 

respect to some qualitative standards.136 In several 

instances where the NYSE sought to lower its 

qualitative standards, including the aforementioned 

proposal to remove the requirement for shareholder 

approval, the NYSE justified the change by noting the competitive advantage enjoyed by other 

exchanges with different standards.137

In Fiscal Year 2017, the Office of the Investor 

Advocate intends to continue reviewing changes 

to the listing standards of the national securities 

exchanges, particularly those that would further 

deteriorate the rights of shareholders to approve 

corporate actions that significantly impact their 

financial interests. 

FUND FEES AND EXPENSES

United States-registered investment companies 

(including open-end mutual funds, exchange-traded 

funds, closed-end funds, and unit investment trusts) 

managed more than $18 trillion in assets at the end 

of calendar year 2015.138 Those assets under management include some of the investments of more 

than 90 million U.S. retail investors.139 Mutual 

funds remain popular among households—retail 

investors held approximately 89 percent of the 

nearly $16 trillion of mutual fund assets at the end 

of 2015.140 Exchange-traded funds accounted for 

approximately $2.1 trillion assets under management by the end of 2015.141

While there are fees and expenses associated with 

all of these assets under management, some investors may not necessarily understand the amount 

they are paying, what exactly they are paying for, 
18 | OFFICE OF THE INVESTOR ADVOCATE

nor the impact of costs on the long-term value of 

their investments. Some of these costs relate directly 

to the management and operation of the funds 

themselves. In addition, to the extent that investors engage financial intermediaries, there may also 

be layers of fees that investors pay to compensate 

investment advisers, brokers, or other financial professionals for the services they provide.142 We intend 

to take a closer look at fund fees and expenses in 

Fiscal Year 2017 and consider ways to improve 

investor understanding of those costs and their 

cumulative impact on fund holdings.

Fees and Expenses for Management and 

Operation of Funds

As an initial observation, we believe that the Commission should explore different approaches to 

further enhance mutual fund cost disclosures. For 

purposes of this discussion, several resources are 

particularly insightful, including the SEC’s Division 

of Investment Management staff guidance on fund 

distribution and sub-accounting fees, the IAC’s 

mutual fund cost disclosure recommendation, and 

recently-published research on fund fees.

Division of Investment Management 

Staff Guidance

In January 2016, the Division of Investment Management published a staff guidance update (“Staff 

Guidance”) on registered open-end investment 

company (“mutual fund” or “fund”) distribution 

and sub-accounting fees.143 While the Staff Guidance is more directly geared toward mutual fund 

boards of directors, we believe that it is relevant to 

individual investors as well. For example, the Staff 

Guidance recognizes that “[m]utual fund fees have a 

direct impact on investor returns” and that “because 

investors may evaluate funds based on the specific 

level of 12b-1, management, and other fees, potential mischaracterization of fees may lead them to 

invest in funds that they would not otherwise have 

selected.”144 This is no less true for individual investors than it is for institutional investors.

A particular focus of the Staff Guidance is rule 12b-1 

under the Investment Company Act of 1940 (“1940 

Act”).145 Section 12(b) of the 1940 Act and rule 

12b-1 thereunder limit the ability of funds to use 

fund assets to pay for distribution of fund shares.146

Generally, rule 12b-1 prohibits mutual funds from 

engaging, directly or indirectly, in financing any 

activity which is primarily intended to result in the 

sale of fund shares, except pursuant to a so-called 

“12b-1 plan.”147 The Staff Guidance addresses the 

possibility of potential mischaracterization of 12b-1 

and other fund fees, as well as the potential for the 

inappropriate use of fund assets to pay for distribution-related activities outside of a rule 12b-1 plan.148

We share this concern and believe that investors 

should be able to rely on the accuracy of 12b-1 and 

other fund fee disclosures associated with any funds 

they own or are evaluating.149

Investor Advisory Committee 

Recommendation on Mutual Fund 

Cost Disclosure

On April 14, 2016, the IAC recommended that 

the Commission “explore ways to improve mutual 

fund cost disclosures” with the goal of enhancing investors’ understanding of the actual costs 

they bear when investing in mutual funds and 

the impact of those costs on total accumulations 

over the life of their investments.150 In making this 

recommendation, the IAC suggested that, in the 

short-term, “the best way to make investors more 

conscious of costs” would be “through standardized disclosure of actual dollar amount costs on 

customer account statements.”151 The IAC also 

encouraged the Commission, “as part of a longer 

term effort to improve disclosures,” to “explore 

ways to provide context for cost information in 

order to improve investor understanding of the 

impact of those costs.”152

Among other things, the IAC mutual fund cost 

disclosure recommendation also encouraged the 

Commission “to test various approaches to deter-
REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 19

mine which are the most effective in informing investors of the costs of their own funds, or funds they are 

considering purchasing, and the long-term impact of 

those costs.”153 In his prepared remarks at that IAC 

meeting, SEC Commissioner Michael S. Piwowar 

voiced his support for a “robust investor testing program that examines the efficacy of various mutual 

fund cost disclosures.”154 We concur. Moreover, we 

expect to be actively involved in such investor testing 

in Fiscal Year 2017.

Study on Mutual Funds and 

Exchange-Traded Funds

On April 26, 2016, Morningstar published 

research indicating that, while average fund costs 

continued to decline in 2015, investors were not 

necessarily paying less in fund fees and expenses.155

This Morningstar study of open-end mutual funds 

and ETFs found that the asset-weighted average 

expense ratio across funds (excluding money market funds and funds of funds) was 0.61 percent 

in 2015, compared with 0.64 percent in 2014 

and 0.73 percent five years ago.156 Based on the 

research, the trend toward lower fund fees appears 

to be driven by investor demand for relatively 

cheaper passive funds (e.g., index funds and ETFs) 

as well as strong inflows into institutional share 

classes, which tend to charge lower fees.157

Despite this trend, the Morningstar study concluded 

that “lower average fund expenses do not necessarily mean investors are paying less for their investments overall.”158 The reason for this, according to 

the study, is that the strong inflows into institutional 

share classes have come through retirement platforms 

and to ETFs via fee-only advisers.159 The Morningstar study also emphasized that, because those 

channels “typically levy another layer of fees in addition to the cost of owning funds,” investors “need 

to consider their total cost of investing.”160 Indeed, 

such adviser and retirement platform expenses have 

become “an increasingly important cost component” 

as investors “migrate toward investment services and 

products with these fee structures.”161 

It would seem that, even as fund fees continue to 

trend downward, investors are not necessarily 

receiving the full benefit of lower fund expenses. 

This is reason for concern. At the same time, we recognize that many individual investors derive value 

from professional financial advice and the advisory 

services that financial intermediaries provide, particularly where those investors lack the time, expertise, 

or inclination to attempt investing on their own.

The Potential Impact of Fund Fees and 

Expenses on an Investment Portfolio

Not all investors are aware of how they bear the 

costs of running the funds in which they invest. For 

example, certain transactions in a fund, such as 

buying, selling, or exchanging mutual fund shares, 

involve costs commonly known as “shareholder 

fees.”162 In addition, a mutual fund has ongoing 

“operating costs” such as marketing and distribution expenses, investment advisory fees for managing the fund’s holdings, as well as custodial, transfer 

agency, legal, accounting, and other administrative 

expenses.163 Although these fees and expenses may 

not be listed as specific line items on a mutual fund

investor’s account statement, in reality, investors 

pay them indirectly because they are built into the 

calculation of the value of each fund share. Consequently, these fees and expenses can have a substantial impact on investment value over time.164

While fees and expenses may vary depending on 

the nature of the fund and its investment strategy, 

generally, a fund with high costs must perform 

better than a low-cost fund to generate the same 

returns.165 Even minor differences in fees from one 

fund to another can add up to substantial differences in investment returns over time.166

The following graph illustrates this concept.167 It 

shows a hypothetical investment portfolio with a 

4 percent annual return over 20 years when the 

investment either has an ongoing fee of 0.25, 0.50 or 

1 percent. Notice how the fees affect the investment 

portfolio over a 20-year period.
20 | OFFICE OF THE INVESTOR ADVOCATE

Portfolio Value From Investing $100,000 Over 20 Years

• The blue line represents the investment portfolio 

of a hypothetical mutual fund that does not 

charge shareholder fees, produces a 4 percent 

annual return over 20 years, and has annual 

operating expenses of 0.25 percent (i.e., $25 for 

every $10,000 invested) during that period. If 

you invested $100,000 in this fund, then after 20 

years your investment portfolio would be worth 

approximately $208,000.168

• The orange line represents the investment 

portfolio of a hypothetical mutual fund that 

does not charge shareholder fees, produces a 

4 percent return over 20 years, and has annual 

operating expenses of 0.50 percent (i.e., $50 for 

every $10,000 invested) during that period. If 

you invested $100,000 in this fund, then after 

20 years your investment portfolio would be 

worth approximately $198,000. The fees and 

expenses would have consumed about $10,000 

more of your investment portfolio over that time, 

compared to the hypothetical mutual fund with 

annual operating expenses of 0.25 percent.169

• The green line represents the investment portfolio 

of a mutual fund that does not charge shareholder 

fees, produces a 4 percent return over 20 years, 

and has annual operating expenses of 1.00 

percent (i.e., $100 for every $10,000 invested) 

during that period. If you invested $100,000 in 

this fund, then after 20 years your investment 

portfolio would be worth approximately 

$179,000. The fees and expenses would 

have consumed nearly $30,000 more of your 

investment portfolio over that time, compared 

to the hypothetical mutual fund with annual 

operating expenses of 0.25 percent.170

The more an investor pays in fees and expenses, the 

less money remains in the investment portfolio. 171

Both shareholder fees and operating costs reduce 

the overall amount invested in a fund.172 Moreover, 

as the preceding chart illustrates, fund fees and 

expenses have a compounding effect over time and 

will erode the fund’s investment returns.173

Ongoing fees not only reduce the investment balance of the fund holding over time, but they also 

result in an indirect opportunity cost equal to what 

an investor would have earned had the investor 

not had to pay those fees.174 The following graph

illustrates the impact of a 1 percent ongoing cost 
REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 21

Illustration of Ongoing Fees Over 20 Years

on a hypothetical $100,000 investment portfolio 

that grows 4 percent annually over a period of 20 

years. The graph also shows the opportunity cost 

of the ongoing fee.175

A mutual fund is required to disclose its shareholder 

fees and operating expenses in its prospectus using 

a standardized fee table.176 The “Shareholder Fees” 

section of the standardized fee table lists some or all 

of the following items: sales loads; redemption fee; 

exchange fee; account fee; and purchase fee.177 The 

“Annual Fund Operating Expenses” section of the 

standardized fee table lists some or all of the following items: management fees; distribution [and/

or service] (12b-1) fees; other expenses; and total 

annual fund operating expenses.178

Some mutual funds identify themselves as 

“no-load” funds.179 However, this nomenclature 

can be confusing. Although a no-load fund does 

not charge a sales fee (commonly called a sales 

load), it may charge other kinds of expenses that 

are not designated as sales loads.180 For example, a 

no-load fund is permitted to charge purchase fees, 

redemption fees, exchange fees, and account fees, 

none of which is considered a sales load.181

As the IAC noted in its recommendation on mutual 

fund cost disclosure, some of the labels for the 

sales charges disclosed in the fee table “are likely to 

be confusing to financially unsophisticated investors.”182 The IAC recommendation suggested that 

simplifying the disclosures could lead to better 

investor understanding—for example, definitions or 

brief descriptions of the fees and charges “should be 

provided when the label or heading itself does not 

clearly indicate or imply the purpose of the fees.”183

Certain Fund-Related Financial 

Intermediary Fees

The Staff Guidance also addressed certain financial 

intermediary fees.184 For example, a recent SEC 

sweep examination of several mutual fund complexes, 

investment advisers, broker-dealers, and transfer 

agents raised some issues with respect to certain 

mutual fund payments to financial intermediaries that 

provide shareholder and recordkeeping services for 

specific mutual fund shares or classes of shares held 

through omnibus and networked accounts.185 These 

exams, which were a joint initiative among the SEC’s 

Office of Compliance Inspections and Examinations 

and various other Commission offices and divisions, 

studied, among other things, the payment of fees to 
22 | OFFICE OF THE INVESTOR ADVOCATE

financial intermediaries characterized as non-distribution related sub-transfer agent, administrative, subaccounting, and other shareholder servicing fees (collectively, “sub-accounting fees”). One of the concerns 

is that many investors do not understand fully the 

array of potential fees associated with their investment 

or retirement accounts, many of which hold funds.

We believe that individual investors should be 

aware—or should be made aware—of the different types and layers of intermediary fees associated 

with the management, operation, and custody of 

their investment or retirement accounts. These may 

include management fees, custodial fees, transaction 

fees, and commissions, among a whole spectrum of 

other potential expenses. In Fiscal Year 2017, we 

will explore ways to improve these disclosures.

Omnibus and Networked Accounts

The use of “omnibus” accounts by broker-dealers 

and other financial intermediaries has proliferated 

in recent years.186 An omnibus account is a master 

account that aggregates the subaccounts of multiple 

investors.187 There are different varieties of omnibus 

accounts. For example, a financial institution may 

establish an omnibus account to aggregate all individual investor accounts that have selected the same 

dividend reinvestment option;188 another omnibus 

account may be established for a single retirement 

plan;189 and yet another omnibus account may 

represent the subaccounts of a variety of investor 

account types, including individual investors, retirement plans, and other pooled accounts.190

Generally, an omnibus account is opened on the 

records of the mutual fund in the name of the 

intermediary.191 The intermediary aggregates trade 

activity for the subaccounts in the omnibus account 

and usually sends a single trade (representing the 

net of all purchases and redemptions of the subaccounts) to the fund transfer agent each day.192 As 

such, the fund complex typically does not possess 

any information identifying or otherwise connected 

to the beneficial owners of the subaccounts.193

Given that a single omnibus account held by a 

fund’s transfer agent represents the share balance 

of multiple beneficial investors being serviced by 

an intermediary, an omnibus account may help 

reduce the administrative burdens of recordkeeping 

and other services that transfer agents traditionally 

provide to fund investors.194 In this case, the financial 

intermediary may perform many of the usual transfer agent services for fund investors whose shares 

are held in an omnibus account, in addition to other 

services they may provide to shareholders.195 It is not 

unusual for mutual funds or their service providers 

to enter into arrangements with financial intermediaries to compensate them for these services—sometimes known as “sub-accounting” arrangements.196

Fee structures for the provision of these services 

may vary; some of these fees may be paid out of 

mutual fund assets (e.g., pursuant to a 12b-1 plan or 

through non-12b-1 shareholder service fees), or by 

a fund’s investment adviser, by a fund’s distributor 

or transfer agent or other service provider, or by any 

combination of these.197

By contrast, an individual “networked” account, 

which is a common type of individual account, is an 

account that is opened and controlled by the brokerdealer exclusively (i.e., the broker-dealer generally 

provides all shareholder services).198 An individual 

networked account typically is registered on the fund 

transfer agent’s books in the broker-dealer firm’s 

name FBO—“for the benefit of”—the individual 

broker-dealer customer.199 As a result, in addition to 

commissions, a broker-dealer may charge a slew 

of other fees, for example, for account maintenance, 

account transfer, failure to maintain a minimum 

account balance, wire transfer, and other fees.200

These fees may not be obvious to individual investors.
REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 23

Shareholder Servicing Arrangements

A financial intermediary may receive compensation 

for providing shareholder services such as processing purchase, redemption, or exchange orders; 

managing account maintenance tasks; responding 

to investor inquiries; furnishing investor statements 

and tax reporting; and delivering the required mailings.201 These so-called “alternative shareholder 

servicing arrangements” may include networking 

agreements with broker-dealers, sub-transfer agent 

agreements with financial institutions and recordkeepers, and third-party mutual fund supermarket 

arrangements.202 In certain contexts such as retirement plans, these arrangements involve services 

that may benefit investors indirectly, but the retirement beneficiary may be unaware of the services 

rendered or even the reason they may be required. 

For example, retirement plan recordkeepers usually 

provide the participant level accounting of activity and positions, as well as conduct the account 

processing, maintenance, and servicing activities. 

To the extent a financial intermediary assumes 

responsibility for shareholder servicing activities with respect to retirement plans, the financial 

intermediary may be compensated in the form of 

a sub-transfer agent fee, networking fees paid to 

broker-dealers, 12b-1 fees, or as other types of fees 

under a separate agreement with the fund and/or 

its affiliates.203 It is unlikely that many individual 

investors are aware of these multiple layers of fees.

Under some circumstances, the fund distributor may 

pay the financial intermediary an upfront fee known 

as a “finder’s fee.”204 This may occur when all sales 

charges are waived for a very large order because 

the dollar value meets or exceeds the fund’s highest threshold amount for reducing sales charges.205

In such a case, where the shareholder pays no sales 

charge due to the large size of the order, the finder’s 

fee is paid to compensate the financial intermediary 

for generating the large value trade.206

Financial intermediaries may be compensated in 

other ways as well. For example, some fund distributors may have incentive programs for certain 

of their distribution partners to compensate them 

for providing education to registered representatives 

and additional marketing to potential investors—

a practice known as “revenue sharing.”207 Other 

compensation may take the form of “shelf space” or 

“access” fees that encourage sellers to carry the fund 

product as part of their product offerings to potential customers by offering these incentive fees.208

Moreover, for load as opposed to no-load funds, 

investors may pay sales charges in the form of a 

one-time fee at the time of purchase—known as 

a “front-end load”—to financial intermediaries, 

typically broker-dealers, as part of the purchase of 

fund shares.209 Alternatively, investors in load funds 

may pay sales charges in installments through 12b-1 

fees (sometimes called a “contingent deferred sales 

charge”) that decline over time and disappear after 

several years.210

Generally, it is the intermediary who determines 

which account structure to use to support its mutual 

fund-related business. Some investment advisers and 

broker-dealers tend to use individual networked 

accounts, while omnibus accounts are used by all 

types of intermediaries.211 Most fund complexes 

work with a variety of intermediaries and should be 

prepared to support the different types of account 

structures favored by their specific intermediary 

partners.212 Regardless of the type of account structure employed, we believe that financial intermediaries should disclose to the funds—and to investors—precisely how they are compensated.

REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 25

OMBUDSMAN’S REPORT

ESTABLISHING A FOUNDATION 

FOR MEANINGFUL SERVICE

Under Section 919D of the Dodd-Frank Act, as 

codified in Exchange Act Section 4(g)(8), 15 U.S.C. 

§ 78d(g)(8), the Ombudsman shall: (i) act as a liaison between the Commission and any retail investor in resolving problems that retail investors may 

have with the Commission or with self-regulatory 

organizations; (ii) review and make recommendations regarding policies and procedures to encourage persons to present questions to the Investor 

Advocate regarding compliance with the securities 

laws; and (iii) establish safeguards to maintain the 

confidentiality of communications between investors and the Ombudsman.213

The Ombudsman is also required to “submit a 

semi-annual report to the Investor Advocate that 

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

(the “Ombudsman’s Report”).214 The Ombudsman’s Report must be included in the semi-annual 

reports submitted by the Investor Advocate to 

Congress. To maintain reporting continuity going 

forward, the Ombudsman’s Report included in the 

Investor Advocate’s June 30 Report on Objectives 

will provide a look back on the Ombudsman’s 

activities during the first half of the fiscal year and 

discuss the objectives of the Ombudsman for the 

following fiscal year. The Ombudsman’s Report 

included in the Investor Advocate’s December 31 

Report on Activities will provide a look back on 

the Ombudsman’s activities during the full preceding fiscal year. Accordingly, this report describes 

the Ombudsman’s activities from October 1, 2015 

through March 31, 2016 

(the “Reporting Period”) and 

provides a discussion of the 

Ombudsman’s primary objectives and outlook for Fiscal 

Year 2017, beginning October 1, 2016. 

During the Reporting Period, 

the Ombudsman215 continued 

to build the foundational 

infrastructure and procedures necessary to support 

the ombudsman function by: 

• Establishing and piloting policies and 

procedures for staff review of and response to 

investor correspondence; 

• Updating existing Ombudsman policies and 

procedures to reflect changes implemented to 

maximize efficient service to those seeking staff 

assistance, maintain and safeguard records, 

and minimize foreseeable challenges related to 

staffing limitations and reporting obligations;

• Refining issue tracking categories and 

recordkeeping to enhance the analysis, 

handling, and reporting of retail investor 

concerns and to formulate the basis for tailored 

recommendations to effectively address retail 

investor concerns; 
26 | OFFICE OF THE INVESTOR ADVOCATE

• Working directly with the SEC’s Office of Information Technology 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; 

• Establishing and testing dedicated pathways 

for the exchange of electronic correspondence 

through the Ombudsman’s electronic platform 

currently under development; and,

• Identifying specialized training opportunities 

for staff members to enhance their dispute 

resolution knowledge and expertise. 

OUTREACH AND ENGAGEMENT

The Ombudsman is required to review and make 

recommendations regarding policies and procedures to encourage persons to present questions 

to the Investor Advocate regarding compliance 

with the securities laws. To achieve this objective, 

the Ombudsman must be known, approachable, 

and accessible to all stakeholders, including retail 

investors, financial services industry participants, 

and SEC staff at all levels. In this context, sharing 

information about the role within and outside the 

SEC is central to the Ombudsman’s effectiveness. 

During the Reporting Period, the Ombudsman 

continued to seek out opportunities to increase 

awareness and elevate the visibility of the position 

through participation in various events within the 

dispute resolution and securities industries, as well 

as leadership events targeting a broader group of 

business leaders and professionals. The Ombudsman also personally met with SEC division and 

office directors and senior staff to facilitate ongoing 

working relationships and enhance the Ombudsman’s effectiveness as a liaison for investors raising 

questions or concerns about the SEC and the SROs 

the agency oversees.

While the day-to-day focus remained primarily 

on foundational policies, procedures, and systems 

required to meet the needs of investors and others 

seeking assistance, the Ombudsman identified 

strategies to continue and strengthen relationships with SROs, investors, and other interested 

persons and stakeholders. In Fiscal Year 2017, 

as we shift from manual recordkeeping systems 

to an electronic platform, the Ombudsman plans 

to restructure staff resources and responsibilities to accommodate additional outreach efforts, 

including regular in-person meetings with key SEC 

staff, investor-focused speaking engagements, and 

continued participation in securities and dispute 

resolution industry conferences and events.

Law School Clinic Outreach Program

In recent semesters, the Office of the Investor 

Advocate benefited from SEC law student externs 

assigned to the office who participated in investor 

protection, securities law, and arbitration clinics at 

their respective law schools. Working directly with 

the Investor Advocate, the Ombudsman and an 

Office of the Investor Advocate senior counsel 

began developing a framework for an outreach 

program to inform law schools with investor 

protection, securities law, and arbitration clinics 

of the work of the office. We plan to work directly 

with clinic professors and students to engage investors and offer information on policies and dispute 

resolution issues directly impacting investors, offer 

law school clinics and law student participants the 

opportunity to hear directly from and work with 

Office of the Investor Advocate staff through guest 

lectures, workshops, and seminars, and create an 

additional path for investors and law students to 

provide the Investor Advocate and Ombudsman 

with direct feedback and formal comments on 

Commission rulemakings and policy.
REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 27

OMBUDSMAN STANDARDS 

OF PRACTICE 

Any retail investor with an issue or concern related 

to the SEC or an SRO subject to SEC oversight 

may contact the Ombudsman. The Ombudsman 

is available to identify existing SEC options and 

resources to address issues or concerns, and to explore informal, objective steps to address issues 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 or other 

Commission staff.

OMBUDSMAN MATTER 

MANAGEMENT SYSTEM

The Ombudsman maintains records of inquiries and 

concerns to: (i) identify and respond to problems 

retail investors have with the Commission or with 

SROs; (ii) track and analyze matter volume, responses, 

and resolution times; (iii) categorize and report corresponding trends and concerns; and (iv) provide datadriven support for recommendations presented by 

the Ombudsman to the Investor Advocate for review 

and consideration. During the Reporting Period, the 

Ombudsman continued to use several independent 

recordkeeping systems to collect, document, track, 

and respond to all forms of correspondence received 

from retail investors and other persons, and to 

ascertain issue trends and determine areas of interest 

or concern to investors. In the absence of an integrated matter management system, documenting and 

responding to a single inquiry requires the staff to 

enter, update, and search for related data in multiple 

systems. These separate systems also require independent procedures for maintaining the confidentiality of 

different types of information.

The Ombudsman is placing a high priority on 

transitioning to a fully functional, customized, electronic matter management platform in the coming 

fiscal year. Throughout this Reporting Period, the 

Ombudsman worked extensively with the SEC’s 

Office of Information Technology and a technology contractor to establish data parameters, testing 

environments, and functionality requirements for 

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 require-
28 | OFFICE OF THE INVESTOR ADVOCATE

ments are met. The Ombudsman anticipates that 

OMMS will: (i) provide an efficient, user-friendly 

method for retail investors to submit detailed 

information to the Ombudsman; (ii) automate a 

significant portion of the existing manual intake 

process; (iii) reduce staff resources required to track 

and monitor matters and responses; (iv) increase 

staff resources available to interact with investors, 

research issues, and resolve concerns; and 

(v) supplement the existing safeguards used to 

maintain the confidentiality of communications 

with the Ombudsman. 

When launched, OMMS will incorporate a secure 

communication system permitting the submission 

of electronic inquiries and complaints directly to 

the Ombudsman through the www.sec.gov/ombudsman web page. OMMS will employ a webbased form (“OMMS Form”) to guide the user 

through a series of questions specifically tailored 

to elicit information concerning matters within 

the scope of the Ombudsman’s function. During 

the Reporting Period, the technology contractor 

created an OMMS testing environment where the 

Ombudsman and Office of Information Technology staff refined the OMMS Form and functionality, and engaged in an extensive and ongoing assessment and feedback process.

The OMMS Form will encourage more retail investors and the public to contact the Ombudsman, as 

web-based forms are an efficient, commonly used 

method for submitting inquiries and complaints. 

Persons who choose to contact the Ombudsman 

via the OMMS Form will encounter user-friendly 

features such as radio buttons, drop-down menu 

responses, pop-up explanation bubbles, web page 

links, and fillable narrative text fields. The OMMS 

Form also incorporates response recognition 

functionality that pre-populates specific fields and 

prompts the user to provide additional information as necessary. In addition, the OMMS Form 

will solicit detailed contact information to enhance 

efficient communication with users and will allow 

users to electronically upload and submit related 

documents for staff review. 

The Ombudsman and approved staff will have the 

ability to review investor inquiries and complaints, 

including communication, handling, and resolution 

histories, within OMMS. OMMS 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 comprehensive research and analysis. Over time, OMMS should 

enhance operational efficiency on multiple levels.

OMBUDSMAN SERVICE BY 

THE NUMBERS 

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 informally resolve 

matters that fall outside of the established resolution channels and procedures at the SEC; and

• Acting as an alternate channel of communication 

between retail investors and the SEC. 

During the six-month Reporting Period, the 

Ombudsman fielded 509 separate contacts where 
REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 29

an individual contacted the Ombudsman for assistance related to a particular issue or concern. These 

contacts came from retail investors, industry professionals, attorneys, students, SEC staff, and other 

individuals. Of these 509 contacts, 71 were related 

to matters carried over from Fiscal Year 2015.

The Ombudsman conducts an assessment of every 

contact to examine the unique facts, circumstances, 

and concerns raised, and to make a determination 

of any further research and staff involvement that 

may be required. Unless circumstances required 

otherwise, the Ombudsman completed an assessment 

of each contact generally within five business days 

of receipt. During the Reporting Period, most assessments were completed less than two business days 

after receipt. Once the assessments were complete, 

the majority of these contacts required additional 

research and resources—including correspondence 

between the Ombudsman, SEC staff, SRO staff, and 

investors and individuals—to address the questions 

or concerns raised. The 509 contacts fell into 10 

primary categories:

To highlight inquiry trends and evaluate recommendations, the Ombudsman also tracks contacts by matter. 

The 509 contacts represented 111 discrete matters. 

The 111 matters fell into 10 primary categories:

Within the 10 matter categories, the Ombudsman 

identified certain recurring themes:

• Five individuals reported conflicts between 

elderly investors and brokers who allegedly took 

advantage of their client’s physical, mental, or 

financial vulnerability;

• Five investors raised concerns about recovering 

losses in the context of Fair Funds, claim funds, 

or other circumstances involving court-appointed 

receivers;

• Seven individuals complained about inadequate 

investor protections in bankruptcy proceedings 

and/or the role of the SEC in corporate bankruptcy 

restructuring; and

• Twelve investors criticized the manner in which 

the SEC staff responded, or failed to respond, to 

a tip, complaint, request for investigation, inquiry, 

or other communication from the investor.
30 | OFFICE OF THE INVESTOR ADVOCATE

The Ombudsman’s web presence also expanded 

during the Reporting Period, as the Ombudsman’s 

external web page, accessible through the Commission’s public website at www.sec.gov/ombudsman, became publicly available days before the 

beginning of the Reporting Period. The web page 

offers straightforward explanations about the 

Ombudsman’s role and the assistance the Ombudsman provides, and describes how individuals may 

contact the Ombudsman and raise concerns for 

the Investor Advocate’s consideration. The web 

page was viewed 595 times during this Reporting 

Period, with an average time spent on each view 

of 2 minutes and 30 seconds. A December 23, 

2015 post on social media by SEC News regarding the Ombudsman216 received 7,096 views as of 

the end of the Reporting Period. The Ombudsman 

is working with SEC staff to track these analytics 

on a continuing basis and to use the data to refine 

the web-based information offered to investors and 

the interested public. In anticipation of the OMMS 

launch, the Ombudsman also is soliciting feedback 

from other ombudsmen colleagues and is working 

with SEC staff to explore the viability of various 

social media platforms as additional avenues for 

investor outreach efforts. 

OMBUDSMAN SERVICE BEHIND 

THE NUMBERS 

While the numbers and statistics provide some 

insight on the Ombudsman’s activity during the 

reporting period, they present only a partial understanding of the Ombudsman’s operations and 

impact. The following sections provide additional 

context around the assistance and service the 

Ombudsman provides, the complexity of these 

matters, and the individualized strategies the 

Ombudsman crafts to address each situation.

Managing Expectations and 

Restoring Confidence

Investors frequently contact the Ombudsman when 

they are unable to resolve a specific investmentrelated problem or financial market concern in the 

way they expected. The Ombudsman works with 

investors to clarify aspects of the resolution process, 

the federal securities laws, and the role of the SEC to 

help investors understand the reasons behind certain 

agency decisions and practices.

During this reporting period, the Ombudsman 

addressed several compelling inquiries involving 

elderly investors. In one instance, an elderly investor’s brokerage account transaction was mistakenly 

identified as a suspicious activity and flagged as an 

identity fraud risk. When she attempted to resolve 

the issue directly, the firm subjected her to arduous 

security questions and ultimately rejected the transaction and blocked her access to her account. By the 

time the investor contacted the Ombudsman she was 

particularly distraught, as she was dependent upon 

the account funds to meet all of her living expenses. 

Within one day of her complaint, the Ombudsman 

responded by phone and explained the process 

through which the SEC contacted the brokerage firm 

and liaised with staff in other SEC offices to expedite 

a resolution of her complaint. The investor subsequently sent the Ombudsman a letter indicating she 

obtained access to her funds and expressing gratitude for helping restore her confidence in the SEC 

to protect individual investors.

In another matter, a concerned individual sought 

the Ombudsman’s help to understand the outcome 

of an enforcement action in which the SEC issued a 

disgorgement penalty against an investment adviser. 

His elderly mother-in-law lost her entire life’s savings 

due to the unscrupulous practices of her investment 

adviser, and he was waiting for disgorgement funds 

to be returned to her and the other harmed investors. 

From his perspective, the money the adviser paid to 

satisfy the SEC disgorgement penalty was money that 

rightfully belonged to his mother-in-law and the other 

harmed investors. Consequently, he argued that the 

SEC was perpetuating and exacerbating the harm 

by failing to return the disgorgement to investors via 

a Fair Fund. The Ombudsman proceeded carefully 

and respectfully and provided information backed 
REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 31

by research to explain how restitution and disgorgement differ, how Fair Funds are established, and how 

provisions for Fair Fund and disgorgement payments 

are determined. By listening to and thoughtfully 

considering his concerns, the Ombudsman helped him 

understand that the SEC represents the broad public 

interest by penalizing misconduct and cannot represent 

the interests of private parties, how the SEC works to 

protect investors through enforcement actions, and 

how those penalties are carefully determined.

The Ombudsman also received complaints about disappointing interactions with SEC staff. For example, 

an SEC job applicant contacted the Ombudsman to 

share a “horrible customer service experience” during 

the SEC job application process. She felt that the staff 

person she spoke with handled her call unprofessionally and inadequately, and, more importantly, that 

the incident reflected poorly on the SEC overall. The 

Ombudsman called her personally, sought clarification 

of her concerns about the application process, and followed up to confirm that the applicant was able to get 

her questions about her application process answered. 

In the end, the applicant shared that her subsequent 

interactions with the SEC and, in particular, the Ombudsman, changed her view about the SEC and the 

consideration given to her complaint.

This final example is provided to give a full picture 

of the challenges the Ombudsman encounters in 

responding to investors. A foreign investor copied the 

Ombudsman on email correspondence relating to 

his ongoing dispute with his brokerage firm concerning, among numerous complaints, his lack of access 

to hard copies of his account documents. Further 

frustrating his efforts were his location abroad and a 

seemingly slight, but very significant, language barrier. 

After exchanging emails explaining the role of the 

Ombudsman and identifying appropriate alternative 

SEC and FINRA dispute resolution procedures, the 

Ombudsman reached out to him by telephone. The 

conversation revealed that, although the investor 

had exhausted the SEC complaint process, he had 

not explored any FINRA complaint options. The 

Ombudsman provided him with the appropriate 

FINRA contact information and followed the call 

with a summary email containing additional links to 

FINRA online resources available in his native language. The investor expressed his great appreciation 

for the phone call and the additional information, 

and seemed relieved that the Ombudsman spent time 

to help him identify resources to resolve his dispute. 

Acting as a liaison and leveraging the ability to address 

investor concerns informally, the Ombudsman demonstrated the SEC’s genuine commitment to the protection of individual investors in a meaningful way.

FINRA Dispute Resolution Reform

As discussed in the Report on Activities for Fiscal 

Year 2015 and the Report on Objectives for Fiscal 

Year 2016, several investors raised concerns to the 

Ombudsman about the FINRA arbitration process. 

The Ombudsman is empowered to act as a liaison 

between the Commission and any retail investor in 

resolving problems that retail investors may have with 

the Commission or with a self-regulatory organization 

such as FINRA.217 Consistent with this responsibility, the Ombudsman met with SEC and FINRA staff 

working on FINRA arbitration and dispute resolution 

issues. Likewise, the Ombudsman continued the regular practice of monitoring policy, news, articles, and 

other activity centered on FINRA and its dispute resolution forum with a specific focus on how FINRA’s 

activities impact the issues and complaints raised to 

the Ombudsman by retail investors. 

In July 2014, FINRA formed the FINRA Dispute 

Resolution Task Force (“Task Force”) to consider 

the future of FINRA’s dispute resolution forum, and 

to provide recommendations to FINRA’s National 

Arbitration and Mediation Committee (“NAMC”) 

to improve the forum.218 Of interest to the Ombudsman during the Reporting Period was the final report the Task Force issued in December 2015 (“Final 

Report”)219 which included 51 recommendations 

covering 11 thematic areas.220
32 | OFFICE OF THE INVESTOR ADVOCATE

The Final Report noted that although the Task Force 

established an email box to receive comments from 

the public, most of the 188 comments received came 

from arbitrators.221 The Final Report also noted that 

the Task Force solicited written comments from 33 

interested organizations and individuals.222 However, 

in light of the lack of input from retail investors to the 

Task Force, coupled with the complaints about the 

arbitration process received by the Ombudsman from 

retail investors, the Ombudsman is taking a closer 

look at the Task Force’s recommendations in two 

particular areas: explained awards and expungement.

Explained Awards

Explained awards—sometimes referred to as “explained decisions” or “reasoned awards”—are factbased awards that state the general reasons for the 

arbitrators’ decision.223 Currently, explained awards 

are only required to be written by arbitrators upon the 

joint request by both parties before the first arbitration hearing.224 Arbitrators are not required to include 

legal authorities or damage calculations in explained 

awards.225

The absence of explanations in awards has been a 

long-standing, common complaint of non-prevailing 

parties in FINRA’s dispute resolution forum.226 Why do 

explained decisions matter to retail investors? Over the 

years, a wide range of commenters including industry 

experts, securities law practitioners, and legal scholars 

have noted that the inclusion of explained awards 

would likely increase investors’ perceptions of the fairness of the arbitration process.227 Commenters further 

noted that many investors want explained decisions, 

and the arbitrators’ decision-making process will 

appear more transparent and will encourage higherquality awards for those who request and receive 

explained decisions.228 The Task Force agreed with this 

analysis, stating that expanding the use of explained 

decisions is one of the most important steps that 

FINRA can take to improve the transparency of its 

arbitration system, and that greater confidence in the 

fairness of FINRA’s arbitration system would likely 

flow from that increase in transparency.229 This conclusion is consistent with the questions and feedback the 

Ombudsman receives from investors.

In the Final Report, the Task Force made three related 

recommendations to the NAMC: (1) the FINRA rule230

should be amended to require an explained decision 

unless a party to the arbitration notifies FINRA prior to 

the first hearing that it does not want an explained decision; (2) the existing fact-based format of the explanation should be retained, but the decision should include 

a summary explanation of the damages calculation; 

and (3) before expanding explained decisions, FINRA 

should develop and administer a training program on 

how to write them and should require arbitration panel 

chairpersons to complete the training promptly after 

receiving notice that an explained decision is expected 

in an assigned case.231

The Task Force stated that “creating the presumption of an explained decision is a modest change that 

may or may not result in any appreciable increase 

in explained decisions.”232 The Ombudsman agrees 

with the Task Force’s observation about the potential 

efficacy of its explained awards recommendations, and 

is further concerned that retail investors’ perceptions of 

unfairness in the arbitration process will persist, even 

with an increase in the number of explained awards.233

Nonetheless, the Ombudsman supports the Task 

Force’s recommendations and encourages FINRA’s 

efforts to proceed thoughtfully as changes to explained 

awards are considered and implemented. 

Expungement

The Central Registration Depository (“CRD”) is an 

online registration and licensing system used by regulators, FINRA, and members of the securities industry. 

Investors cannot access CRD, but much of the information in CRD is available to the public through BrokerCheck, a free research tool available on FINRA’s 

website.234 Through BrokerCheck, investors can learn 

about brokers’ employment histories, certifications, 

licenses, regulatory actions, violations, and complaints, 
REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 33

as well as information about their brokerage firms.235

Regulators also rely on data in CRD for licensing and 

enforcement activities.

When a broker is named as a respondent in a 

customer-initiated arbitration proceeding, that fact 

is required to be reported and is subsequently added 

to the broker’s CRD record. If the arbitration claim 

against the broker is denied by the arbitrators, the 

broker may seek to have any reference to the arbitration claim removed—or “expunged”—from his or her 

CRD record. As a result, if arbitrators award expungement, the customer’s complaint may be permanently 

removed from the broker’s CRD record and BrokerCheck.236

To award expungement, brokers and brokerage firms 

(“respondents”) must follow FINRA Rule 2080. 

Under this rule, respondents must obtain a court 

order to expunge information from CRD arising from 

disputes with customers.237 To do this, respondents 

have two choices: they may seek expungement directly 

from a court, or they may seek to have the arbitrators award expungement and then request a court to 

confirm the award. 

When filing with the court, FINRA must be named 

as a party unless FINRA waives this requirement on 

its finding that: (i) the claim is factually impossible or 

clearly erroneous; (ii) the broker was not involved in 

alleged sales violations, forgery, theft, misappropriation of funds, or conversion of funds; or (iii) the claim 

is false.238 For arbitrators to award expungement, the 

arbitrators must state which of these three grounds for 

expungement is met and provide a brief, written explanation of the reason why the grounds are satisfied 

when applied to the facts in the case.239

FINRA considers the expungement of customer dispute information from CRD to be an “extraordinary 

remedy” that should be recommended only under 

appropriate circumstances.240 Despite the narrow 

standard of Rule 2080 and expungement training provided to arbitrators, multiple studies have shown that 

arbitrators routinely grant requests for expungement 

in settled and stipulated matters.241 Thus, as a practical 

matter, when a matter is settled, the complaining party 

has little or no incentive to contest an expungement. 

This brings into question whether expungement really 

is an extraordinary remedy recommended only under 

appropriate circumstances. 

Accurate and complete reporting in CRD is an important aspect of investor protection. When information 

is expunged from the CRD system, it is permanently 

deleted and is no longer available to the investing public, regulators, or prospective broker-dealer employers. 

In a recent notice, FINRA stated that “arbitrators 

have a unique, distinct role in ensuring that customer 

dispute information is expunged from the CRD system 

only when it has no meaningful investor protection 

or regulatory value.”242 In March 2016, FINRA announced that it will file a rule to address the practice 

of brokers continually being granted expungement of 

their disciplinary histories from industry databases, 

expand upon existing guidance on expungement as 

an extraordinary remedy, and offer guidance on how 

arbitrators should weigh expungement requests.243

With the perspective that the expungement process 

could be improved, the Task Force raised issues and 

offered recommendations in its Final Report that 

largely correlated with comments provided by the 

North American Securities Administrators Association (“NASAA”)244 to the Task Force,245 including the 

following:

• The Task Force discussed whether a FINRA 

representative should participate in expungement 

hearings to represent the public interest.246

• The Task Force recommended that FINRA create 

a pool of specially trained arbitrators from the 

chairperson roster to conduct expungement 

hearings in settled cases and in all cases 

where claimants did not name the broker as a 

respondent.247
34 | OFFICE OF THE INVESTOR ADVOCATE

• The Task Force recommended that the panel 

that conducts the arbitration also conducts the 

expungement hearing in cases decided on the 

merits, provided the chairperson attends special 

expungement training.248

• The Task Force also recommended that FINRA 

review procedures for notifying state regulators 

of expungement requests,249 but took no position 

on NASAA’s recommendation for a regulatory 

approach to expungement.

• The Task Force recommended that FINRA review 

its expungement training with a consultant, and 

that FINRA review the second Rule 2080 ground 

for expungement (the broker was not involved 

in the “alleged investment-related sales practice 

violation, forgery, theft, misappropriation or 

conversion of funds”).250

• The Task Force also recommended requiring 

greater expungement training for arbitrators, 

with additional training required to qualify for 

the special arbitration panel.251 

As the discussion above shows, the small number 

of FINRA arbitration complaints received by the 

Ombudsman during the Reporting Period was not 

indicative of the scope and significance of the issues 

presented in those complaints. The Ombudsman 

and staff have reviewed voluminous studies, reports, 

arbitration procedures, policy discussions, and 

commentaries relating to the investor experience in

securities arbitration matters, and have spoken at length 

with various complainants on numerous occasions. 

As with explained decisions, the Ombudsman is 

interested in and open to hearing the perspectives of 

retail investors on issues relating to expungement. 

The Ombudsman will continue to solicit additional 

information and feedback from retail investors and will 

work with SEC staff to ensure that the views, interests, 

and experiences of retail investors—as important stakeholders in the arbitration process and in the outcome of 

arbitration decisions—are considered as changes to the 

arbitration process are implemented. 

OUTLOOK

During the Reporting Period, and since September 

2014 when the Ombudsman began her duties, a 

particular refrain has been common to the majority 

of the inquiries and complaints received. Investors 

are frustrated, concerned, and disappointed that their 

voices are not heard or considered by brokerage or 

investment advisory firms, corporations, regulators, 

or the financial industry in general. Hearing this 

feedback from investors on a consistent basis, the 

Ombudsman realizes that investors are disenchanted 

with the regulatory process and disconnected from 

their role as important market participants. To 

address this issue, in Fiscal Year 2017, the Ombudsman will examine the various ways the SEC communicates with the investing public to identify areas for 

improvement in both practice and perception.

To focus our efforts and staff resources properly, the 

Ombudsman will continue to track inquiry categories, identify trends, and conduct research and 

analysis. With the implementation of OMMS in 

Fiscal Year 2017, the Ombudsman anticipates that 

the expanded data analysis capability will help 

identify additional areas of interest to investors and 

permit more targeted research and analysis. The 

Ombudsman will also continue to review and analyze 

the FINRA arbitration process, focusing on expungement and explained awards and reviewing any other 

areas raised by investors as important to the process. 

Finally, the Ombudsman looks to Fiscal Year 2017 as 

an opportunity to establish more extensive channels 

of communication with retail investors and to create 

an ongoing forum for their concerns to be heard and 

considered as a vital part of the work of the office. 

Tracey L. McNeil

Ombudsman
REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 35

SUMMARY OF IAC 

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.252 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.253

Exchange Act Section 39 authorizes the Committee 

to submit findings and recommendations for review 

and consideration by the Commission.254 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.255 While 

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

or act upon the recommendations.256

In each of its reports to Congress, including this 

one, the Office of the Investor Advocate summarizes the IAC recommendations and the SEC’s 

responses to them.257 This report covers all recommendations the IAC has made since its inception.258

However, the Commission may be pursuing initiatives that are responsive to IAC recommendations 

but have not yet been made public. Commission 

staff—including the staff of this Office—are prohibited from disclosing nonpublic information.259

Therefore, any such initiatives are not reflected in 

this Report.

MUTUAL FUND COST DISCLOSURE

This recommendation,260 adopted on April 14, 

2016, consists of three parts:

• The Commission should explore ways to 

improve mutual fund cost disclosures, with the 

goal of enhancing investors’ understanding of 

actual costs and the impact of those costs on 

total accumulations over time. 

• In the short term, the Commission should 

standardize disclosure of actual dollar amount 

costs on customer account statements. 

• Over the longer term, the Commission should 

explore ways to provide context for cost 

information to improve investor understanding 

of the impact of those costs.

The Commission has not yet responded to this 

recommendation.
36 | OFFICE OF THE INVESTOR ADVOCATE

EMPOWERING ELDERS AND OTHER 

INVESTORS: BACKGROUND CHECKS 

IN THE FINANCIAL MARKETS

This recommendation,261 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 easy searches of any person 

or firm sanctioned for these violations; 

• 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

• 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. 

The Commission’s response to this recommendation 

is pending. 

SHORTENING THE TRADE SETTLEMENT 

CYCLE IN U.S. FINANCIAL MARKETS

This recommendation,262 adopted on February 12, 

2015, calls for shortening the security settlement 

period in the U.S. financial markets from a three-day 

settlement cycle (“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. 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 

nevertheless pursued, 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. The Chair and both

current Commissioners have expressed support for 

shortening the settlement cycle. Since the IAC 

recommendation, developments have focused on 

moving to T+2, not T+1.

On June 29, 2015, Commissioners Piwowar and 

Stein issued a joint statement expressing their support for shortening the settlement cycle as soon as 

possible. Their statement referred specifically to the 

IAC recommendation.263

On September 16, 2015, Chair White expressed her 

strong support for efforts to shorten the settlement 

cycle from T+3 to T+2. In a letter to two industry 

leaders, she focused on the industry goal of moving to T+2 by the third quarter of 2017, while also 

mentioning a move from T+2 “to shorter settlement 

cycles potentially in the future.”264

The Chair noted that the most significant regulatory 

changes needed to move to T+2 would be amendments to the various rules of the SROs that either 

mandate or relate to a three-day settlement cycle. 

She stated that she had directed Commission staff 

to work closely with the SROs and, in addition, to 

develop a Commission proposal to amend Exchange 

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

than T+2. 

In March 2016, two SROs took steps to amend 

their rules to facilitate settlement in two days. The 

Municipal Securities Rulemaking Board (“MSRB”) 

filed with the Commission a proposal to amend two 

rules to define regular-way settlement for municipal 

securities transactions as occurring on a two-day 

settlement cycle (i.e., T+2) rather than the current 
REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 37

three-day cycle.265 As part of its procedures, the Commission held a public comment period ending April 8, 

2016, on the MSRB proposal.266

FINRA, meanwhile, proposed rule changes that would 

amend the definition of “regular way” settlement as 

occurring on T+2. FINRA held a comment period that 

ended April 4, 2016. The proposals would apply to 

U.S. secondary market transactions in equities, corporate and municipal bonds, unit investment trusts, and 

financial instruments composed of these products.267

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.”268 On October 9, 2014, the IAC 

adopted a recommendation that the staff of the 

Commission take the steps necessary to ensure that 

the exemption is conditioned upon the broker (and 

any intermediary designated by the broker) acting 

in an impartial and ministerial fashion throughout 

the proxy process, and that any broker who uses an 

intermediary take reasonable steps to verify that the 

intermediary is not subject to impermissible conflicts 

of interest.269 In adopting these recommendations, 

the IAC noted several concerns about current industry practices, including the disclosure of preliminary 

voting results to issuers while the results are withheld 

from exempt solicitors, as well as possible conflicts 

of interest between the issuer and the broker’s designated intermediary.

COMMISSION RESPONSE . The Commission 

response to this recommendation is pending.

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.270

• The Commission should 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 expected, the analysis 

were to reveal a failure to meet that goal, then the 

Committee recommended prompt rulemaking to 

revise the definition. 

• The Commission should revise the definition 

to enable individuals to qualify as accredited 

investors based on their financial sophistication. 

• However, if the Commission chooses to continue 

relying on financial thresholds, it should 

consider limiting investments in private offerings 

to a percentage of assets or income.

• The Commission should encourage development 

of an alternative means of verifying accredited 

investor status that shifts the burden away from 

issuers. 

• In addition to any changes to the accredited 

investor standard, the Commission should 

strengthen the protections that apply when 

non-accredited individuals, who do not 

otherwise meet the sophistication test for such 

investors, qualify to invest solely by virtue of 

relying on advice from a purchaser representative. 

COMMISSION RESPONSE . On December 

18, 2015, the Commission issued a staff report 

(“Report”) analyzing various approaches for 

modifying the definition of an accredited investor.271

The Report considered comments received from 

the Investor Advisory Committee, as well as from 

the Advisory Committee on Small and Emerging 

Companies and others. The Report remains open for 

comment from the public, with no set deadline for 

comments.
38 | OFFICE OF THE INVESTOR ADVOCATE

The Report found that, as a result of inflation, the 

number of U.S. households qualifying as accredited 

investors has increased from approximately 2 percent of the population to more than 10 percent.272

Nonetheless, the staff found no evidence suggesting 

that the expanded number of qualified investors 

needed the protections of registration.273

The Report recommended that the Commission 

consider one or more of several ways to revise 

the financial thresholds requirements for natural 

persons to qualify as accredited investors. The first 

approach was in accord with the IAC’s recommendation to limit investments in private offerings to a 

percentage of assets or income. The Report recommended that the Commission consider limiting 

investments for individuals who qualify as accredited investors solely based on those thresholds to 

a percentage of their income or net worth (e.g., 10 

percent of prior year income or 10 percent of net 

worth, as applicable, per issuer, in any 12-month 

period).274 This approach would leave the current 

income and net worth thresholds in the accredited 

investor definition in place.

The Report proposed that the Commission consider two further changes to financial thresholds: first, 

to adjust the income and net worth thresholds for 

inflation (such as $500,000 for individual income, 

$750,000 for joint income, and $2.5 million for net 

worth);275 and, second, to index financial thresholds 

going forward.276

The Report also recommended that the Commission consider revising the Accredited Investor 

Definition to allow individuals to qualify as accredited investors based on measures of sophistication 

other than financial measures. The Report offered a 

menu of options by which individuals would qualify 

as accredited investors, including by having certain 

investment experience or professional credentials.277

CROWDFUNDING

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

a package of six recommendations, as described 

below, which were intended to strengthen the Commission’s proposed rules to implement the crowdfunding provisions of the Jumpstart Our Business 

Startups (“JOBS”) Act.278 The Committee stated 

that its recommendations would better ensure that 

investors understand the risks of crowdfunding and 

avoid unaffordable financial losses. 

On October 30, 2015, the Commission adopted 

final rules to permit companies to offer and sell 

securities through crowdfunding.279 The Adopting 

Release made several references to the IAC recommendations, and the Division of Corporation 

Finance prepared for the IAC a chart mapping the 

IAC recommendations to the relevant text in the 

Adopting Release. 

Adopt tighter limits on the amount of money 

that investors could invest in crowdfunding

The IAC recommended what became known as a 

“lesser of” approach in setting investment crowdfunding limits for all investors except accredited 

investors. This approach would mean that, unless 

both an investor’s income and net worth exceeded 

$100,000, the investor would only be allowed to 

invest up to 5 percent, and that 5 percent calculation would be applied to the lower of either their 

net worth or income. If both an investor’s net 

worth and income exceeded $100,000, then the 

investor could invest up to 10 percent, but that 

percentage would still be calculated based on the 

lower of either their income or net worth. In the 

Adopting Release, the Commission reversed its earlier proposal and adopted a “lesser of” approach, 

explaining that it had found the concerns of the 

IAC and other commenters persuasive.280
REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 39

Strengthen the mechanisms for the 

enforcement of the investment limits in 

order to better prevent errors and evasion 

The IAC recommended requiring intermediaries to 

create a tool that investors would use to assemble 

the underlying data on which investment limits are 

calculated and to perform the calculations electronically. In addition, the Committee urged the Commission to provide an incentive for private-sector 

improvements in cross-portal monitoring, such as 

the development of a central database. Finally, the 

IAC recommended that the Commission view as 

temporary the provision allowing portals to rely on 

investor representations regarding investor limits; 

the Commission should monitor the effectiveness 

of this approach to determine whether it should be 

continued or whether a more stringent enforcement 

mechanism is needed.

The Commission adopted the Final Rule as proposed, requiring intermediaries to have a reasonable basis for believing that the investor satisfies the 

investment limits.281 The Commission did not require 

intermediaries to create software tools, as the IAC 

had recommended. Instead, the Commission noted 

that intermediaries could at their discretion take additional measures, such as creating a tool for investors 

to assemble the underlying data.282 The Commission 

also asked the staff to conduct a study of the federal 

crowdfunding exemption, including a review of the 

need for a centralized database. The Commission 

expects the staff to undertake the study no later than 

three years following the May 16, 2016, effective 

date of Regulation Crowdfunding.283

Clarify and strengthen the obligations of 

crowdfunding intermediaries to ensure that 

issuers comply with their legal obligations 

First, the IAC urged the Commission to clarify the 

requirements for background checks by requiring 

that a summary of the sources consulted as part 

of the background check be posted on the website 

along with a description of the portal’s standards 

for determining which offerings present a risk of 

fraud. Second, the IAC urged the Commission to 

affirm clearly the right of portals to “curate” offerings; i.e., “to reject offerings based on whatever factors the portal deems appropriate.” Third, the IAC 

encouraged the Commission to consider a tiered 

approach that would impose heightened compliance obligations as the risks to investors increased. 

Such an approach would be based on factors such 

as the size of offering, investment limits, and participation by individuals with a record of securities 

law violations.

In the Adopting Release, the Commission chose 

not to require an intermediary to post to its website 

a summary of the sources consulted as part of the 

background check and a description of the intermediary’s standards. Among other things, the Commission expressed concerns that the posting of such 

information could present a roadmap to potentially 

fraudulent issuers.284

Second, the Commission modified its rule in a manner consistent with the IAC’s recommendation to 

allow platforms to provide curated offerings. The 

Final Rule expressly provides funding portals with 

broad discretion to determine whether and under 

what circumstances to allow an issuer to offer and 

sell securities through its platform.285

Third, the Commission did not adopt a specific 

tiered approach to compliance obligations as the 

IAC had recommended. Nonetheless, the Commission asserted that the Final Rule, by imposing 

a reasonable basis requirement on intermediaries, 

was “generally consistent” with a tiered approach

in that it required intermediaries to have a reasonable basis that issuers using the platform complied 

with the crowdfunding requirements.286
40 | OFFICE OF THE INVESTOR ADVOCATE

Enhance the effectiveness of educational 

materials for investors

The IAC made several suggestions to strengthen the 

quality and delivery of educational material. The 

Committee suggested that the Commission consider 

requiring or encouraging the material to be presented in the form of participatory education, such 

as an interactive questionnaire that investors would 

be required to complete successfully before being 

allowed to invest through the intermediary’s portal. 

The IAC also expressed the view that it would be 

appropriate for regulators (the Commission, state 

securities regulators, FINRA, or all three working 

together) to develop a sample guide designed to 

alert investors to the risks of crowdfunding.

In the Adopting Release, the Commission 

emphasizes the flexibility of intermediaries to determine the content and format of required investor 

education materials.287 The Commission chose not 

to require that intermediaries design an investor 

questionnaire, but noted that they could do so if 

they wished.288

Replace the proposed definition of 

electronic delivery with a stronger definition 

At a minimum, the Committee recommended 

requiring disclosure of a specific URL where 

required disclosures could be found. 

The Final Rule allows, but does not require, 

intermediaries to include specific website links in 

electronic messages to investors. Instead, intermediaries may choose among three options. In one 

option, the electronic message may provide notice 

of what the information is and notify investors that 

this information is located on the intermediary’s 

platform or on the issuer’s website.289

Replace the proposal to eliminate 

application of the integration doctrine 

with a narrower approach

Under certain circumstances, an offering conducted 

under one exemption can be “integrated” with an 

offering conducted under a separate exemption, which 

means that the entire amount raised would count 

against the offering caps in either exemption. In the 

original crowdfunding proposal, offerings conducted 

under other exemptions would not be integrated with 

the crowdfunding offering for purposes of the offering 

limits in the crowdfunding exemption.

The IAC expressed concern that the Commission’s proposed approach would allow issuers to 

circumvent certain investor protections because 

they would be able to conduct offerings simultaneously under multiple exemptions with potentially 

conflicting regulatory requirements. The Committee 

recommended narrowing the application of the integration doctrine rather than eliminating it entirely.

In the Adopting Release, the Commission provided 

guidance that a crowdfunding offering would not 

be integrated with other exempt offerings made 

by the issuer, provided that each offering complies 

with the requirements of the applicable exemption 

that is being relied upon for that particular offering. The guidance offers two examples involving 

concurrent offerings and rules on general solicitation. The Commission observed, “This may partly 

alleviate some of commenters’ concerns because 

each offering will have the investor protections of 

the offering exemption upon which it relies.”290

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.291 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 
41 | OFFICE OF THE INVESTOR ADVOCATE

the pilot unless benefits were proven to outweigh 

the costs; to conduct a careful evaluation of costs 

and benefits to investors, with a particular focus 

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

capital formation.

COMMISSION RESPONSE. 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 5 cents per share in three groups of securities. 

The Commission’s release specifically referenced the 

IAC recommendations.292 

In August 2014, the SROs submitted a plan for 

a two-year pilot program, and the Commission 

approved it with modifications on May 6, 2015.293

The Commission increased the duration of the 

pilot program (from one year to two) and reduced the size of companies in it (lowering the 

market capitalization threshold from $5 billion 

to $3 billion). 

Though it did not adopt the IAC’s recommendations, the Commission stated that it had carefully 

considered them. The Commission also acknowledged the IAC’s “concern that a pilot would disproportionately harm retail investors because their 

trading costs would rise.”294

On November 6, 2015, the Commission delayed 

the implementation date by approximately five 

months, to October 3, 2016.295 The delay was 

intended to allow sufficient time to complete necessary preparations, including Commission approval 

of applicable SRO rules and development and testing 

by pilot participants of new compliance systems.296

To establish a baseline, participants began to collect 

data on April 4, 2016, for the six-month period 

prior to the implementation of the Pilot Period.297

LEGISLATION TO FUND INVESTMENT 

ADVISER EXAMINATIONS

On November 22, 2013, the IAC recommended 

that the SEC request legislation from Congress that 

would authorize the Commission to impose user 

fees on SEC-registered investment advisers to provide a scalable source of funding for more frequent 

compliance examinations of advisers.298 The IAC 

asserted that the examination cycle for SEC-registered investment advisers was “simply inadequate 

to detect or credibly deter fraud.”299

COMMISSION RESPONSE. Though it has never

made a statement requesting user fees, the Commission has made funding for increased coverage 

of investor adviser exams a top priority every year 

since FY 2015. Each year, the Commission has 

requested funding to hire additional examiners in 

the SEC Office of Compliance Inspections and Examinations (“OCIE”): the FY 2015 Budget Request 

called for funding to support an increase of 316 

OCIE examiner positions;300 the FY 2016 Budget 

Request, an increase of 225 OCIE examiners;301

and the FY 2017 Budget Request, an increase of 

127 OCIE examiners.302

In addition to adding new examiners when new 

resources become available, OCIE is in the process 

of converting some staff from its broker-dealer 

examination program to the investment adviser/

investment company program, with the goal of increasing staff for the latter by roughly 20 percent.303

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.304 The Committee preferred 

to accomplish this objective by narrowing the 

exclusion for broker-dealers within the definition 
42 | OFFICE OF THE INVESTOR ADVOCATE

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 brokerdealers and investment advisers should be subject 

to a uniform fiduciary standard of conduct when 

providing personalized securities advice to retail 

investors. In Congressional testimony, she stated 

that she would soon begin discussing the issue with 

fellow Commissioners, and that she had asked 

Commission staff to develop rulemaking recommendations for Commission consideration.305 She 

made similar remarks at a subsequent meeting of 

the IAC.306

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.307 The 

IAC also encouraged the Commission to hold one 

or more roundtable discussions on the topic.

COMMISSION RESPONSE. On February 19,

2015, the Commission held a Proxy Voting Roundtable to explore issues related to proxy voting, 

including the use of a universal ballot.308

In June 2015 Chair White stated that she had asked 

Commission staff to bring appropriate rulemaking 

recommendations before the Commission on universal proxy ballots.309 She also appealed to corporations to give “meaningful consideration to using 

some form of a universal proxy ballot even though 

the proxy rules currently do not require it.”310

Further Commission action is pending.

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.311 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. Regulation of NMS

Stock Alternative Trading Systems. On November 

19, 2015, the Commission proposed rules to enhance 

operational transparency and regulatory oversight 

of alternative trading systems (ATSs) that trade 

stocks listed on a national securities exchange (NMS 

stocks), including “dark pools.”312 The proposal 

would require an NMS stock ATS to file detailed 

disclosures on newly proposed Form ATS-N about 

its operations and the activities of its broker-dealer 

operator and its affiliates. The Commission proposed 
REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 43

that the disclosures be filed in a structured format 

that could allow the Commission and market participants to better search and analyze information about 

NMS Stock ATSs.313

Use of Derivatives by Registered Investment Companies and Business Development Companies. In 

May 2015, the Commission proposed a new Form 

N-Port, which would require registered funds other 

than money market funds to provide portfolio-wide 

and position-level holdings data to the Commission 

on a monthly basis in a structured data format.314

In December 2015, the Commission proposed 

enhanced reporting requirements relating to risk 

metrics of certain derivatives for funds that are 

required to have a derivatives risk management program.315

Crowdfunding. On October 30, 2015, the Commission adopted final rules to permit companies to 

offer and sell securities through crowdfunding.316

Companies that rely on the recommended rules to 

conduct a crowdfunding offering must file certain 

information on Form C, including the price of the 

securities, the company’s financial condition, a 

description of the business, and the use of proceeds 

from the offering.317 Unless otherwise indicated 

in the form, Form C must be filed in the standard 

format of eXtensible Markup Language (XML).318

Swap Data of Security-Based Swap Data Repositories. On December 11, 2015, the Commission proposed amendments to specify the form and manner 

with which security-based swap data repositories 

(“SDRs”) will be required to make security-based 

swap data available to the Commission under

Exchange Act Rule 13n-4(b)(5).319 The Commission proposed to require SDRs to make this data 

available according to schemas that reference the 

international industry standards Financial products 

Markup Language (“FpML”) and Financial Information eXchange Markup Language (“FIXML”).320

Disclosure of Payments by Resource Extraction 

Issuers. On December 11, 2015, the Commission 

proposed rules that would require resource extraction issuers to disclose payments made to the U.S. 

federal government or foreign governments for 

the commercial development of oil, natural gas or 

minerals.321 The proposed rules would require a 

resource extraction issuer to publicly disclose the 

information annually using Form SD. The information would be included in an exhibit and electronically tagged using the eXtensible Business Reporting Language (“XBRL”) format.322

Earlier rulemakings. As detailed in our previous 

Reports to Congress,323 the Commission has incorporated structured data requirements in previous 

rulemakings, including ones related to liquidity risk 

of mutual funds,324 registration of security-based 

swap dealers,325 clawbacks of erroneously awarded 

executive compensation,326 investment company 

reporting modernization,327 executive pay versus 

performance,328 Regulation A,329 asset-backed 

securities disclosure and registration,330 and money 

market funds.331

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.332 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”).333
44 | OFFICE OF THE INVESTOR ADVOCATE

As either a replacement for or supplement to the 

SEC’s proposed asset allocation glide path illustration, the IAC recommended that the Commission 

develop a glide path illustration that would be 

based on a measure of fund risk. To promote comparability between funds, the IAC recommended 

the adoption of standard methodologies to be used 

in glide path illustrations. In addition, the IAC 

urged the Commission to require clearer disclosure 

about the risk of loss, the cumulative impact of 

fees, and the assumptions used to design and manage the funds.

COMMISSION RESPONSE. On April 3, 2014, the

Commission reopened the comment period on the 

proposed rule in order to seek public comment on 

the IAC’s recommendations to adopt a risk-based 

glide path illustration and the methodology to be 

used for measuring risk.334 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 506.335 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 

offerings336 and disqualifying offerings involving felons and other bad actors.337 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.338 The majority of 

the IAC recommendations relate to the proposed 

rule, which has not yet been adopted.
REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 45

END NOTES

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

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

§ 78d(g)(6)(A)(i).

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

§ 78d(g)(6)(B)(i).

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

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

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

7 Id.

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

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

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

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

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

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

§ 78pp(b)(1)(A).

14 Regulation S-K, 17 C.F.R. § 229.10 (2015).

15 Regulation S-X, 17 C.F.R. § 210.1-01 (2015).

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

Report on Review of Disclosure Requirements in 

Regulation S-K (Dec. 20, 2013), http://www.sec.gov/

news/studies/2013/reg-sk-disclosure-requirementsreview.pdf.

17 Keith F. Higgins, Director, Division of Corporation 

Finance, SEC, Remarks Before the American Bar 

Association Business Law Section Spring Meeting: 

Disclosure Effectiveness (Apr. 11, 2014), http://www.sec.

gov/News/Speech/Detail/Speech/1370541479332.

18 Request for Comment on the Effectiveness of Financial 

Disclosures About Entities Other Than the Registrant, 

Securities Act Release No. 9929 (Sept. 25, 2015) [80 

FR 59083 (Oct. 1, 2015)] [hereinafter Regulation 

S-X Request for Comment], http://www.sec.gov/rules/

other/2015/33-9929.pdf.

19 Concept Release, Business and Financial Disclosure 

Required by Regulation S-K, Securities Act Release No. 

10064, (Apr. 13, 2016) [81 FR 23915 (Apr. 22, 2016)] 

[hereinafter Regulation S-K Concept Release], http://

www.sec.gov/rules/concept/2016/33-10064.pdf.

20 Regulation S-X Request for Comment, supra note 18.

21 See Comment File for Regulation S-X Request for 

Comment, https://www.sec.gov/comments/s7-20-15/

s72015.shtml.

22 Regulation S-K Concept Release, supra note 19.

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

SEC Speaks: Effective Disclosure for the 21st Century 

Investor, Washington, D.C. (Feb. 20, 2015), http://

www.sec.gov/news/speech/022015-spchraf.html.

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

Activities, Fiscal Year 2015, at 9 (Dec. 23, 2015), https://

www.sec.gov/advocate/reportspubs/annual-reports/

sec-investor-advocate-report-on-activities-2015.pdf. 

25 See, e.g., David Trainer, XBRL Would Be Wonderful If 

It Always Worked, Forbes, Nov. 7, 2013, http://www.

forbes.com/sites/greatspeculations/2013/11/07/xbrlwould-be-wonderful-if-it-always-worked. 

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

Meeting on Regulation S-K Concept Release (Apr. 

13, 2016), http://www.sec.gov/news/statement/whitestatement-1-041316.html.

27 See generally Concept Release on Equity Market 

Structure, Exchange Act Release No. 61358 (Jan. 14, 

2010) [75 FR 3594 (Jan. 21, 2010)] [hereinafter Equity 

Market Concept Release].

28 Id.

29 Id.

30 Regulation NMS: Final Rules and Amendments to 

Joint Industry Plans, Exchange Act Release No. 

51808 (June 9, 2005) [70 FR 37496 (June 29, 2005)] 

[hereinafter Regulation NMS] (Among other things, 

Regulation NMS eliminated trade-through protection 

for manual quotations).

31 Regulation of Exchanges and Alternative Trading 

System: Final Rule, Exchange Act Release No. 40760 

(Dec. 8, 1998) [63 FR 70844 (Dec. 22, 1998)] 

[hereinafter Regulation ATS].

32 Order Execution Obligations, Exchange Act Release 

No. 37619A (Sept. 6, 1996) [61 FR 48290 (Sept. 12, 

1996)]. 

33 See Regulation ATS, supra note 31.

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

O’Neil & Partners, L.P. Global Exchange and 

Brokerage Conference, Enhancing our Equity 

Market Structure, New York, N.Y. (June 5, 

2014), https://www.sec.gov/News/Speech/Detail/

Speech/1370542004312; Equity Market Concept 

Release, supra note 27.

35 See White, supra note 34.

36 Regulation of NMS Stock Alternative Trading Systems: 

Proposed Rule, Exchange Act Release No. 76474 

(Nov. 18, 2015) [80 FR 80998, at 81042, note 374 

(Dec. 28, 2015)] (File No. S7-23-15) [hereinafter Regulation ATS-N], https://federalregister.gov/a/2015-29890.
46 | OFFICE OF THE INVESTOR ADVOCATE

37 Regulation ATS-N, Exchange Act Release No. 76474, 

supra note 36. 

38 Regulation NMS, Exchange Act Release No. 51808, supra

note 30.

39 See SEC, Press Release, SEC Announces Members of 

New Equity Market Structure Advisory Committee (Jan. 

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

html; see also https://www.sec.gov/spotlight/equity-marketstructure-advisory-committee.shtml. 

40 See SEC, Press Release, supra note 39.

41 See White, supra note 34.

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

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

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

43 Memorandum on Market Taker Fees on Equity 

Exchanges, SEC Division of Trading and Markets, dated 

October 20, 2015, https://www.sec.gov/spotlight/emsac/

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

[hereinafter Staff Paper on Maker Taker].

44 Id. 

45 Id. 

46 Id.

47 Id.

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

and Senator Charles Schumer had written to the SEC 

Chair to urge the SEC to take action to eliminate such 

conflicts of interest, noting in support of their recommendation certain academic and market research into 

order routing decisions that suggests that the conflict may 

be resulting in harm to certain types of investors. See,

e.g., Letter from former Sen. Carl Levin (D-MI), to Mary 

Jo White, Chair, SEC (July 9, 2014), https://www.hsgac.

senate.gov/download/levin-letter-to-sec-chairman-mary-jowhite-re-equity-market-structure-july-15_2014. A recent 

academic paper analyzed selected market data and suggests 

that a significant number of retail firms route nonmarketable orders to the venue offering the highest rebate, 

and do so in a manner that the authors believe might not 

be consistent with the brokers’ duty of best execution. See

Robert Battalio, Shane A. Corwin, and Robert Jennings, 

Can Brokers Have it All? On the Relation Between 

Make-Take Fees and Limit Order Execution Quality, at 

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

cfm?abstract_id=2367462&download=yes.

49 See EMSAC Regulation NMS Subcommittee, Framework 

for Potential Access Fee Pilot (Apr. 19, 2016), https://www.

sec.gov/spotlight/emsac/emsac-regulation-nms-subcommittee-recommendation-041916.pdf. 

50 See Equity Market Structure Advisory Committee Meeting 

(May 13, 2016), https://www.sec.gov/video/webcastarchive-player.shtml?document_id=042616emsac. 

51 Id.

52 See Equity Market Concept Release, supra note 27.

53 See id.

54 See White, supra note 34.

55 See Letter from ICI, MFA, and SIFMA, Customer Specific 

Order Routing Disclosures for Institutional Investors 

to Mary Jo White, Chair, SEC (Oct. 23, 2014), https://

www.managedfunds.org/wp-content/uploads/2014/10/

Cover-Letter-for-Execution-Venue-Template1.pdf; see also

Broker Routing Template, https://www.managedfunds.

org/wp-content/uploads/2014/10/Standardized-BrokerRouting-Venue-Analysis.pdf. 

56 See White, supra note 34.

57 See Current Unified Agenda and Regulatory Plan for the 

SEC, Amendments to Exchange Act Rules 600 and 606: 

Order Routing Transparency for Institutional Customers, 

RIN 3235-AL67 (Fall 2015), http://www.reginfo.gov/

public/do/eAgendaViewRule?pubId=201510&RIN=3235-

AL67.

58 Federal Reserve Board, Financial Accounts of the United 

States: Flow of Funds, Balance Sheets, and Integrated 

Macroeconomic Accounts, Fourth Quarter 2015, Table 

L.212 (Mar. 10, 2016, 12:00 PM), http://www.federalreserve.gov/releases/z1/current/z1.pdf.

59 Id.

60 The MSRB Fact Book data suggests the par amount of 

customer transactions (purchases and sales) in municipal 

securities, as a percentage of the total par amount of 

municipal trades, has steadily declined to approximately 

77 percent in 2015 from approximately 84 percent in 

2011. The number of customer trades, as a percentage of 

total municipal securities trades, remains relatively stable 

ranging from 62 percent to 68 percent each year since 

2011. In a press release, the MSRB noted that overall 

municipal bond market trading volume had declined 

by 13 percent since 2014 and the MSRB attributed a 

majority of this overall municipal bond trading volume 

decline to a “nearly 40 percent decline in trading volume 

in the municipal variable rate market.” MSRB, 2015 Fact 

Book, at 7-8 (March 2016), http://www.msrb.org/msrb1/

pdfs/MSRB-Fact-Book-2015.pdf [hereinafter “MSRB 

Fact Book”]; MSRB, Press Release, MSRB Publishes 

Annual Fact Book of Municipal Securities Data (Mar. 

3, 2016), http://www.msrb.org/News-and-Events/PressReleases/2016/MSRB-Publishes-Annual-Fact-Book-ofMunicipal-Securities-Data.aspx.

61 See, e.g., MSRB Fact Book supra note 60, at 37-39.

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

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

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

also SEC, Office of the Investor Advocate, Report on 

Objectives, Fiscal Year 2016 (June 30, 2015), http://wcm.

sec.gov/advocate/reportspubs/annual-reports/sec-officeinvestor-advocate-report-on-objectives-fy2016.pdf. 
REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 47

63 SEC, Report on Municipal Securities Market (July 

31, 2012) [hereinafter Report on Municipal Securities 

Market], https://www.sec.gov/news/studies/2012/

munireport073112.pdf. 

64 Id.

65 Id. at 149-50. 

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

seeking comments on this recommendation, and the 

MSRB subsequently proposed a best execution rule. On 

December 5, 2014, the SEC issued an order approving 

the proposed amendments, and the rule changes are set 

to become effective on December 7, 2015. On November 

20, 2015, the MSRB published implementation guidance 

to assist bond dealers in complying with the MSRB’s 

best execution rule.The MSRB subsequently announced 

it would provide additional guidance about the new 

best execution rule and delayed the effectiveness of the 

rule until 120 days after publication of the interpretive 

guidance. The MSRB’s best execution rule requires 

municipal securities dealers to use “reasonable diligence” 

in seeking to obtain for their retail customers the most 

favorable terms reasonably available under prevailing 

market conditions. See MSRB, Comment Letters, 

Request for Comment on Whether to Require Dealers 

to Adopt a “Best Execution” Standard for Municipal 

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

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

Approves MSRB Rule G-18 on Best Execution of 

Transactions in Municipal Securities and Related 

Amendments to Exempt Transactions with Sophisticated 

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

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

Announcements/2014-22.ashx?n=1; Order Granting 

Approval of a Proposed Rule Change Consisting of Rule 

G-18, on Best Execution of Transactions in Municipal 

Securities, and Amendments to Rule G-48, on Transactions with Sophisticated Municipal Market Professionals 

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

Exchange Act Release No. 73764 (Dec. 5, 2014) [79 

FR 53236 (Sept 8, 2014)]; MSRB, Press Release, MSRB 

Provides Implementation Guidance on Best-Execution 

Rule (Nov. 20, 2015), http://www.msrb.org/News-andEvents/Press-Releases/2015/MSRB-Provides-Implementation-Guidance-on-Best-Execution-Rule.aspx. 

67 See, e.g., 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; 

Comment Letter, Rick A. Fleming, Investor Advocate, 

SEC, RE: MSRB Regulatory Notice 2015-16, Request 

for Comment on Draft Rule Amendments to Require 

Confirmation Disclosure of Mark-ups for Specified 

Principal Transactions with Retail Customers (Dec. 11, 

2015), http://www.msrb.org/RFC/2015-16/Fleming.pdf; 

Comment Letter, Rick A. Fleming, Investor Advocate, 

SEC, RE: Regulatory Notice 2016-07, Request for 

Comment on Draft Amendments to MSRB Rule G-30 to 

Provide Guidance on Prevailing Market Price (Mar. 31, 

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

68 MSRB, Glossary of Municipal Securities Terms, 

Mark-up, http://www.msrb.org/Glossary/Definition/

MARK-UP.aspx (last visited May 11, 2016).

69 Id.

70 Luis A. Aguilar, Comm’r, SEC, Statement on Making the 

Municipal Securities Market More Transparent, Liquid, 

and Fair (Feb. 13, 2015), https://www.sec.gov/news/

statement/making-municipal-securities-market-moretransparent-liquid-fair.html. 

71 See MSRB Rule G-15, Confirmation, Clearance, 

Settlement and Other Uniform Practice Requirements 

with Respect to Transactions with Customers, http://

www.msrb.org/pdf.aspx?url=http%3A%2F%2Fwww.

msrb.org%2FRules-and-Interpretations%2FMSRBRules%2FGeneral%2FRule-G-15.aspx. 

72 See Report on Municipal Securities Market, supra note 

63, at 148.

73 MSRB rules already require municipal bond dealers 

acting as agents to disclose on the transaction confirmation the amount of any remuneration received 

from the customer. However, there is no comparable 

requirement if the municipal securities dealer is acting as 

a principal (by selling securities out of its own inventory). 

The Municipal Market Report concluded that because 

municipal bond dealers execute almost all customer 

transactions in a principal capacity, customers receive 

very little confirmation disclosure of their dealer’s 

compensation. Thus, the Municipal Market Report 

recommended the MSRB “consider requiring municipal 

bond dealers to disclose to customers, on confirmations 

for riskless principal transactions, the amount of any 

markup or markdown.” See Municipal Market Report, 

supra note 63, at 147-50. 

74 In 2014, the MSRB announced that it would develop a 

proposal regarding disclosure of information by dealers 

to retail customers to help them independently assess 

the prices they were receiving. On November 17, 2014, 

the MSRB and FINRA released companion proposals 

to require disclosure of pricing reference information 

on customer confirmations for transactions in fixed 

income securities. Under both proposals, dealers in 

retail-sized fixed income transactions would be required 
48 | OFFICE OF THE INVESTOR ADVOCATE

to disclose on a customer confirmation the price of 

certain same-day principal trades in the same security 

and the difference between that price and the customer’s 

price. The Comment period for the MSRB’s and FINRA’s 

second request for comment closed on December 11, 

2015. MSRB, Regulatory Notice 2014-20, Request 

for Comment on Draft Rule Amendments to Require 

Dealers to Provide Pricing Reference Information on 

Retail Customer Confirmations (Nov. 17, 2014), http://

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

RFCs/2014-20.ashx?n=1; MSRB, Press Release, MSRB 

Holds Quarterly Meeting (May 6, 2014), http://www.

msrb.org/News-and-Events/Press-Releases/2014/

MSRB-Holds-Quarterly-Meeting-April-2014.aspx; 

MSRB, Press Release, MSRB Holds Quarterly Meeting 

(Aug. 5, 2014), http://www.msrb.org/News-and-Events/

Press-Releases/2014/MSRB-Holds-Quarterly-MeetingJuly-2014.aspx; MSRB, Press Release, FINRA and 

MSRB Release Proposals to Provide Pricing Reference 

Information to Investors in Fixed Income Markets (Nov. 

17, 2014), http://www.msrb.org/News-and-Events/PressReleases/2014/FINRA-and-MSRB-Release-Proposalsto-Provide-Pricing-Reference-Information-for-Investors.

aspx; see also FINRA, Regulatory Notice 14-52, Pricing 

Disclosure in the Fixed Income Markets (Nov. 2014), 

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

Notice_Regulatory_14-52.pdf; MSRB, Regulatory 

Notice 2015-16, Request for Comment on Draft Rule 

Amendments to Require Confirmation Disclosure of 

Mark-ups for Specified Principal Transactions with 

Retail Customers (Sept. 24, 2015), http://www.msrb.

org/~/media/Files/Regulatory-Notices/RFCs/2015-16.

ashx?n=1; FINRA, Regulatory Notice 15-36, Request for 

Comment on Revised Proposal Requiring Confirmation 

Disclosure of Pricing Information in Corporate and 

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

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

Regulatory-Notice-15-36.pdf.

75 Report on Municipal Securities Market, supra note 63, at 

x, 148.

76 See id. at vi, 118-33, 143-44.

77 See id. 

78 See id. at ix.

79 Id.

80 In a speech, Commissioner Aguilar stated that the lack of 

pre-trade price transparency in the secondary market for 

municipal securities “perpetuates the high level of 

markups and other transaction costs that individual 

investors incur, and it prevents individual investors from 

assessing the fairness of the prices they are quoted by 

their dealers. It also complicates broker-dealers’ efforts to 

comply with their fair pricing and best execution obligations.” Aguilar, supra note 70.

81 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). The Office of the Investor Advocate 

highlighted and briefly discussed each area of concern 

in its Report on Activities for fiscal year 2015. See SEC, 

Office of the Investor Advocate, Report on Activities, 

Fiscal Year 2015 (Dec. 23, 2015), http://www.sec.

gov/advocate/reportspubs/annual-reports/sec-investoradvocate-report-on-activities-2015.pdf.

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

Activities, Fiscal Year 2015 (Dec. 23, 2015), http://www.

sec.gov/advocate/reportspubs/annual-reports/sec-investoradvocate-report-on-activities-2015.pdf. 

83 Debt-like obligations include bank loans, direct-purchase 

debt, and privately placed debt. As of March 28, 2016, 

a search of the Electronic Municipal Market Access 

(“EMMA”) system for the term “bank loan” produced 

143 results: 79 documents including the words “bank 

loan” and were filed under the subcategory suggested by 

the MSRB; 23 submissions included the words “bank 

loan” but the document reported under a subcategory 

other than that suggested by the MSRB may not be 

related to a bank loan; and the remaining 41 results 

included the words “bank loan” in a document, did not 

include any document under the subcategory suggested 

by the MSRB. MSRB, Regulatory Notice 2016-11, 

Request for Comment on a Concept Proposal to 

Improve Disclosure of Direct Purchases and Bank Loans 

(Mar. 28, 2016), at 3 n.8, http://www.msrb.org/~/media/

Files/Regulatory-Notices/RFCs/2016-11.ashx?n=1; 

see MSRB, Regulatory Notice 2015-03, Bank Loan 

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

msrb.org/~/media/Files/Regulatory-Notices/Announcements/2015-03.ashx; Kelly, supra note 81. 

84 A minimum denomination is the smallest dollar amount of 

bonds authorized by the issuer to be sold by a dealer to an 

investor in a single transaction. Typically, municipal bonds 

have a minimum denomination of $5,000, but some 

issuers may impose a higher minimum denomination 

threshold, most commonly in the amount of $100,000. 

For a variety of legitimate reasons, issuers may structure 

certain municipal securities with higher minimum denominations (e.g., $100,000 or higher), making them unlikely 

to be purchased by retail investors in the primary market. 

MSRB, Glossary of Municipal Securities Terms, Minimum 

Denomination, http://www.msrb.org/glossary/definition/

minimum-denomination.aspx (last visited May 3, 2016); 

see also Kelly, supra note 81. 

85 See Jack Casey, MSRB Proposes Clarifying Minimum 

Denomination Rule Exceptions, The Bond Buyer, (Apr

7, 2016), http://www.bondbuyer.com/news/washingtonsecurities-law/msrb-proposes-clarifying-minimumdenomination-rule-exceptions-1100814-1.html; 

Chapman and Cutler LLP, Client Alert, MSRB Proposes 
REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 49

Additional Exceptions for Trading Municipal Bonds 

Below Stated Minimum Denominations, (Apr. 8, 2016), 

http://www.chapman.com/insights-publications-MSRB_

Municipal_Bonds_Minimum_Denomination.html (last 

visited Apr. 27, 2016).

86 Minimum denomination represents the smallest dollar 

amount of bonds to be sold by a municipal bond dealer 

to an investor in a single transaction. Kelly, supra 

note 81. See, e.g., SEC, Press Release 2014-246, SEC 

Sanctions 13 Firms for Improper Sales of Puerto Rico 

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

PressRelease/Detail/PressRelease/1370543350368 (on 

November 3, 2014, the Commission sanctioned thirteen 

firms for violating MSRB Rule G-15(f)); Jack Casey, 

Oppenheimer One of 7 Firms FINRA Fines Over 

Minimum Denominations, the Bond Buyer (Feb. 1

2016), http://www.bondbuyer.com/news/washingtonenforcement/oppenheimer-one-of-7-firms-finra-fines-overminimum-denominations-1096687-1.html (in February 

2016, FINRA fined seven firms for trading municipal 

securities below the minimum denomination).

87 Regulatory Notice 2016-11 requested comment on 

whether the MSRB should propose a rule requiring 

municipal advisors to disclose information relating to 

the direct purchases and bank loans of their municipal 

clients. In the Regulatory Notice, the MSRB noted that 

it would publish a second request for comment outlining 

a specific proposal if it determines to proceed with 

imposing such a requirement. Comments were due no 

later than May 27, 2016. MSRB, Regulatory Notice 

2016-11, supra note 83.

88 Regulatory Notice 2016-13 seeking comment on 

whether to amend MSRB Rule G-15(f) to exclude 

two additional trading scenarios from the prohibition 

on sales to customers below the minimum denomination. Comments were due no later than May 25, 

2016. MSRB, Regulatory Notice 2016-13, Request 

for Comment on Draft Amendments to MSRB Rule 

G-15(f) on Minimum Denominations (Apr. 7, 2016), 

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

RFCs/2016-13.ashx?n=1. 

89 Concept Release, Possible Revisions to Audit Committee 

Disclosures, Securities Act Release No. 9862 (July 1, 

2015) [80 FR 38995 (July 8, 2015)], https://federalregister.gov/a/2015-16639.

90 Proposed Auditing Standard, The Auditor’s Report on 

an Audit of Financial Statements When the Auditor 

Expresses an Unqualified Opinion, PCAOB Release 

No. 2016-003 (May 11, 2016), http://pcaobus.org/

Rules/Rulemaking/Docket034/Release-2016-003-ARM.

pdf. See PCAOB, News Release, PCAOB Reproposes 

Standard to Enhance the Auditor’s Report for Investors 

with Refined Requirements for Critical Audit Matters 

(May 11, 2016), http://pcaobus.org/News/Releases/Pages/

PCAOB-Reproposes-Auditors-Report-051116.aspx.

91 Proposed Auditing Standards, PCAOB Release No. 

2013-005 (Aug. 13, 2013), http://pcaobus.org/Rules/

Rulemaking/Docket034/Release_2013-005_ARM.pdf.

92 See supra note 90.

93 See, e.g., comment letters submitted to FASB by the 

California Public Employees’ Retirement System 

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

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

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

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

CommentLetter_C/CommentLetterPage&cid=12182

20137090&project_id=2015-310. For a summary of 

comment letters submitted to FASB, see FASB, Board 

Meeting Handout: Disclosure Framework, dated March 

2, 2016, http://www.fasb.org/jsp/FASB/Document_C/

DocumentPage&cid=1176167952679.

94 FASB, Exposure Draft: Proposed Amendments to 

Statement of Financial Accounting Concepts, Conceptual 

Framework for Financial Reporting—Chapter 3, Qualitative Characteristics of Useful Financial Information, 

http://www.fasb.org/jsp/FASB/Document_C/DocumentPa

ge?cid=1176166402450&acceptedDisclaimer=true. 

95 For a FASB member’s explanation of how the materiality proposals fit in with FASB’s overall Disclosure 

Framework project, see Marc Siegel, For The Investor: 

Disclosure Effectiveness—How Materiality Fits In, 

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

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

e&cid=1176167771326.

96 FASB, Exposure Draft: Proposed Accounting Standards 

Update (ASU), Notes to Financial Statements (Topic 

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

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

=1176166402325&acceptedDisclaimer=true. 

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

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

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

gename=FASB%2FDocument_C%2FDocumentPag

e&cid=1176166402203. 

98 SEC, Investor Advisory Committee, Letter to Technical 

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

spotlight/investor-advisory-committee-2012/iac-letterfasb-materiality-012116.pdf.

99 James V. Schnurr, Chief Accountant, Office of the Chief 

Accountant, SEC, Remarks before the 12th Annual Life 

Sciences Accounting and Reporting Congress, Philadelphia, PA (Mar. 22, 2016), http://www.sec.gov/news/

speech/schnurr-remarks-12th-life-sciences-accountingcongress.html.

100 Id.

101 Mary Jo White, Chair, SEC, Maintaining High-Quality, 

Reliable Financial Reporting: A Shared and Weighty 

Responsibility, Keynote Address at the 2015 AICPA-
50 | OFFICE OF THE INVESTOR ADVOCATE

National Conference, Washington, D.C. (Dec. 9, 2015), 

http://www.sec.gov/news/speech/keynote-2015-aicpawhite.html. 

102 Kara M. Stein, Comm’r, SEC, Statement on the Commission’s Consideration of the Public Company Accounting 

Oversight Board’s Proposed 2016 Budget and 

Accounting Support Fee (Mar. 14, 2016), http://www.

sec.gov/news/statement/stein-remarks-open-meetingpcaob-031416.html.

103 Schnurr, supra note 99.

104 Wesley R. Bricker, Deputy Chief Accountant, SEC, 

Remarks before the 2016 Baruch College Financial 

Reporting Conference, New York, NY (May 5, 2016), 

http://www.sec.gov/news/speech/speech-bricker-05-05-16.

html#_ftn20.

105 Kara M. Stein, Comm’r, SEC, Remarks to the U.S. 

Treasury Department’s Corporate Women in Finance 

Symposium: Toward Healthy Companies and a 

Stronger Economy, Washington D.C. (Apr. 30, 2015), 

http://www.sec.gov/news/speech/stein-toward-healthycompanies.html#_ftn19.

106 Mary Jo White, Chair, SEC, Building Meaningful 

Communication and Engagement with Shareholders, 

Society of Corporate Secretaries and Governance Professionals, 69th National Conference, Chicago, IL (June 

25, 2015), http://www.sec.gov/news/speech/buildingmeaningful-communication-and-engagement-with-shareholde.html.

107 Stein, supra note 105.

108 White, supra note 106.

109 White, supra note 106.

110 White, supra note 106.

111 White, supra note 106.

112 White, supra note 106.

113 See Exchange Act Rule 14a-4(d)(4), 17 C.F.R. §

240.14a-4(d)(4) (2015) . For an explanation of the short 

slate rule, see White, supra note 106, at n.16.

114 See, e.g., SEC Proxy Voting Roundtable (Feb.19, 2015), 

http://www.sec.gov/news/otherwebcasts/2015/proxyroundtable-021915.shtml (in which advocates and 

opponents of universal proxies expressed their views).

115 SEC, Recommendations 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.

116 Letter from Glenn Davis, Director of Research, Council 

of Institutional Investors, Request For Rulemaking to 

Amend Section 14 of the Securities Exchange Act of 

1934 to Facilitate the Use of Universal Proxy Cards in 

Contested Elections (Jan. 8, 2014), https://www.sec.gov/

rules/petitions/2014/petn4-672.pdf. 

117 SEC Proxy Voting Roundtable, supra note 114.

118 White, supra note 106.

119 White, supra note 106.

120 Exchange Act Rule 14a-8, 17 C.F.R. § 240.14a-8 (2015).

121 Id.

122 Id.

123 Mary Jo White, Chair, SEC, Speech at Tulane University 

Law School 27th Annual Corporate Law Institute: 

A Few Observations on Shareholders in 2015, New 

Orleans, LA (Mar. 19, 2015), http://www.sec.gov/news/

speech/observations-on-shareholders-2015.html.

124 Exchange Act Rule 14a-9, 17 C.F.R. § 240.14a-9 (2015).

125 SEC, Division of Corporation Finance, Staff Legal 

Bulletin No. 14H (CF), October 22, 2015, https://www.

sec.gov/interps/legal/cfslb14h.htm.

126 See Exchange Act § 6(b)(5), 15 U.S.C. § 78f(b)(5) (2015).

127 See, e.g., Exchange Act Release No. 65225 (Aug. 30, 

2011) [76 FR 55148 (Sept. 6, 2011)] (File No. SR-BATS2011-018), http://www.gpo.gov/fdsys/pkg/FR-2011-

09-06/pdf/2011-22627.pdf [hereinafter BATS Listing 

Approval Order].

128 See id. at 55152 n.30.

129 See id. at 55152.

130 See NASDAQ Stock Market Rule 5635, Shareholder Approval (2016), http://nasdaq.cchwallstreet.

com/NASDAQTools/bookmark.asp?id=nasdaqrule_5635&manual=/nasdaq/main/nasdaq-equityrules/.

131 See Exchange Act Release No. 74849 (April 30, 2015) 

[80 FR 26118 (May 6, 2015)] (File No. SR-NYSE-2015-

02), https://federalregister.gov/a/2015-10503. 

132 See Memorandum to the Commission from Rick. A. 

Fleming, Investor Advocate, SEC, dated October 16, 

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

comment-letter-sec-investor-advocate-101615.pdf. 

133 See Exchange Act Release No. 76814 (Dec. 31, 2015) 

[81 FR 820 (Jan. 7, 2016)] (File No. SR-NYSE-2015-02), 

https://federalregister.gov/a/2015-33313.

134 See NASDAQ, Solicitation of Comments by the 

NASDAQ Listing and Hearing Review Council about 

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

listingcenter.nasdaq.com/assets/Shareholder%20

Approval%20Comment%20Solicitation.pdf. See also

Press Release, NASDAQ, Nasdaq Requests Comments 

for Shareholder Approval Rules (Nov. 18, 2015), http://

ir.nasdaq.com/releasedetail.cfm?releaseid=943415.

135 See Letter to Stanley Higgins, Senior Director, Listing 

Qualifications, NASDAQ, from Rick. A Fleming, 

Investor Advocate, SEC (Feb. 12, 2016), https://www.

sec.gov//about/offices/investorad/comment-letter-investoradvocate-nasdaq-021216.pdf. 
REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 51

136 See Rick A. Fleming, Investor Advocate, SEC, The 

Falling Leaves of the Buttonwood Tree, The SEC Speaks 

in 2016, Washington D.C. (Feb. 19, 2016), https://www.

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

137 See id. See also Appendix, The Falling Leaves of the 

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

about/offices/investorad/investor-advocate-sec-speaksappendix-021916.pdf. 

138 See Investment Company Institute, 2016 In

Company Fact Book 8 (56th ed., 2016), www.ici.o

research/stats/factbook.

139 See id. at 6.

140 See id. at 29.

141 See id.

142 See id. at 102.

143 SEC, Mutual Fund Distribution and Sub-Accounting 

Fees, IM Guidance Update No. 2016-01 (Jan. 2016) 

[hereinafter Staff Guidance]. We recognize and support 

the Division of Investment Management’s continuing 

efforts and significant contributions toward enhancing 

fee disclosure.

144 See Staff Guidance, supra note 143.

145 Investment Company Act, 15 U.S.C. § 80a-1 et seq. 

(2015).

146 See Mutual Funds and Exchange Traded Funds 

Regulation (Clifford E. Kirsch, ed., 3d ed. 2014).

147 Investment Company Act Rule 12b-1(a)(2), 17 C.F.R. §

270.12b-1(a)(2) (2015); Staff Guidance, supra note 143.

148 Staff Guidance, supra note 143.

149 While a discussion of 12b-1 fees is beyond the scope 

of this Report, we take notice that the SEC’s Office of 

Compliance Inspections and Examinations plans to 

launch a “Share Class Initiative” to examine commissions in connection with recommending share classes that 

charge 12b-1 fees. See, e.g., Melanie Waddell, SEC to 

Launch 12b-1 Fee Share Class Initiative, ThinkAdvi

(Apr. 19, 2016).

150 See SEC, Recommendation of the Investor Advisory 

Committee Regarding Mutual Fund Cost Disclosure 

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

151 See id.

152 See id.

153 See id.

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

Investor Advisory Committee Meeting (Apr. 14, 2016), 

tr. at 17. See also Beagan Wilcox Volz, SEC Investor 

Group Calls for Big-Fee Disclosure Changes, Ignit

(April 18, 2016), http://ignites.com/pc/1336673/152483.

155 See Morningstar Manager Research, Average

Costs Continued to Decline in 2015 (Apr. 26, 2016), at 

1.

156 See id.

157 See id.

158 See id.

159 See id. See also Anne Tergesen, Fees on 401(k)s Head 

Lower, Wall St. J., May 16, 2016, at A

160 See Morningstar, supra note 1

161 See id.

162 See SEC Investor Bulletin, Mutual Fund Fees and 

Expenses (May 2014), https://www.sec.gov/oiea/investoralerts-bulletins/ib_mutualfundfees.pdf.

163 See id.

164 See id.

165 See id.

166 See id.

167 See id.

168 See id.

169 See id.

170 See id.

171 See id.

172 See id.

173 See id.

174 See SEC Investor Bulletin, How Fees and Expenses Affect 

Your Investment Portfolio (Feb. 2014), www.sec.gov/

oiea/Article/ib_fees_expenses.pdf.

175 See id.

176 See Mutual Fund Fees and Expenses, supra note 162.

177 Id.

178 Id.

179 Id.

180 Id.

181 Id.

182 See supra note 150.

183 See id.

184 Staff Guidance, supra note 143.

185 See id.

186 See id.

187 See, e.g., Navigating Intermediary Relationships, Joi

Report of the Investment Company Instit

Independent Directors Council, Sept. 2009

188 See id.
52 | OFFICE OF THE INVESTOR ADVOCATE

189 See id.

190 See id.

191 See id.

192 See id.

193 See id.

194 Staff Guidance, supra note 143.

195 See id.

196 See id.

197 See id.

198 See, e.g., Navigating Intermediary Relationships, supra

note 187.

199 See id.

200 See id.

201 See id.

202 See id.

203 See id.

204 See id.

205 See id.

206 See id.

207 See id.

208 See id.

209 See id.

210 See id.

211 See id.

212 See id.

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

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

215 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.

216 @SEC_News, Twitter (Dec. 23, 20

10:45 AM), https://twitter.com/SEC_News/

status/679734537115549697. 

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

218 See Final Report, infra note 219, at 1, 4. The NAMC 

is FINRA’s Standing Board Advisory Committee on 

dispute resolution that meets to discuss the Final Report 

and recommend items to implement immediately, items 

to discussion further, and identify items that may not 

be feasible. See FINRA, FINRA Arbitration Task Force 

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

org/newsroom/2015/finra-arbitration-task-force-issuesfinal-report. 

219 See FINRA, Final Report and Recommenda

FINRA Dispute Resolution Task Force (Dec. 

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

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

220 The 11 thematic areas are: Arbitrators; Explained 

Awards; Expungement; Small Claims; Mediation; 

Motions to Dismiss; Case Management – Procedural 

Issues; Transparency; Frivolous Motions to Vacate; 

Professionalism; and Funding to Law School Arbitration 

Clinics.

221 Final Report, supra note 219, at 4-5.

222 Id. at 5. The Task Force solicited written comments 

from the American Arbitration Association, Consumers 

Union, Public Investors Arbitration Bar Association 

(“PIABA”), Securities Industry and Financial Markets 

Association, and other organizations. See Final Report, 

supra note 219, Appendix III.

223 See FINRA, FINRA Dispute Resolution Arbitrator 

Training, Explained Decisions, Mar. 2010, at 4, https://

www.finra.org/sites/default/files/ArbMed/p121132.pdf. 

224 FINRA, Rule 12904(g) (2009)

225 Id. Even if the parties do not jointly request an explained 

decision before the first arbitration hearing, the 

arbitrators may still provide one, but the arbitrators are 

not obligated to do so.

226 See, e.g., Exchange Act Release No. 34-52009 (July 11, 

2005) [70 FR 41065, 41065 (July 15, 2005)] (proposed 

rule to require explained decisions upon request by 

investors in FINRA arbitrations).

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

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

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

Rule Change Relating to Amendments to the Codes of 

Arbitration Procedure to Require Arbitrators to Provide 

an Explained Decision upon the Joint Request of the 

Parties (Nov. 20, 2008) [hereinafter Black-Gross letter], 

at 6, http://www.sec.gov/comments/sr-finra-2008-051/

finra2008051-1.pdf.

228 Id.

229 Final Report, supra note 219, at 21.

230 FINRA Rule 12904(g) requires arbitrators to provide 

a brief, fact-based explanation of their award when 

requested by both parties to the dispute.

231 Final Report, supra note 219, at 23.

232 Id. at 22.

233 The Black-Gross letter provides an interesting discussion 

of the effects of continuing to frustrate retail investors, in 

the context of FINRA’s explained decision rule proposal 

in 2008: “Although this revision respects arbitration as 

a process valuing all parties’ consent, we have concerns 
REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 53

that this change does not adequately address the apprehension investors have over the fairness of the process. 

Securities arbitration is, as a practical matter, mandatory. 

. . . As a consequence, investors who request a written 

explanation in a case where brokers and/or firms decline 

to request one may believe they have little control over 

the process. If those investors are unhappy with the 

outcome of the hearing, their perceptions of unfairness 

will only increase.” Black-Gross letter, supra note 227, 

at 5. This analysis is equally relevant to the Task Force’s 

explained decisions recommendations.

234 FINRA BrokerCheck, http://brokercheck.finra.org (last 

visited May 11, 2016).

235 Id.

236 See Expungement Training (Part II), FINRA, https://

www.finra.org/arbitration-and-mediation/expungementtraining-part-ii (last visited May 11, 2016); see also, 

Expanded Expungement Guidance, infra note 240.

237 FINRA, Rule 2080(a) (2004)

238 FINRA, Rule 2080(b)(1) (2004)

239 FINRA, Rule 12805(c) (2009)

240 Notice to Arbitrators and Parties on Expanded Expungement Guidance, FINRA, https://www.finra.org/

arbitration-and-mediation/notice-arbitrators-and-partiesexpanded-expungement-guidance (last updated Sept. 

2015) [hereinafter Expanded Expungement Guidance].

241 PIABA published studies in 2007, 2013, and 2015, 

and Seth E. Lipner, Professor of Law, Zicklin School of 

Business, Baruch College, published a study in 2013. 

All four studies show alarmingly high percentages of 

expungements granted in settled and stipulated matters. 

See PIABA, PIABA 2007 Expungement Study (Se

2007), https://piaba.org/system/files/pdfs/September%20

24,%202007%20including%20Expungement%20

Study.pdf; PIABA, Expungement Study of t

Investors Arbitration Bar Associatio

2013), https://piaba.org/system/files/pdfs/PIABA%20

Expungement%20Study.pdf; PIABA, Update to

2013 Expungement Study of PIABA (Oct. 20

https://piaba.org/system/files/pdfs/Update%20on%20

the%202013%20Expungement%20Study%20of%20

PIABA%20%28October%2020%2C%202015%29.

pdf; Seth E. Lipner, Analysi Of Expungement A

Settled FINRA Customer Arbitrations Janu

- June 30, 2013 (2013) (on file with the Ombudsman).

242 Expanded Expungement Guidance, supra note 240.

243 Antoinette Gartrell, FINRA to Address Expungement 

Issues, Arbitration Chief Says, BNA (Mar. 21, 2016), 

http://www.bna.com/finra-address-expungementn57982068766; see also, Update: FINRA Board of Governors Meeting (Sept. 17, 2015), FINRA, http://www.

finra.org/industry/update-finra-board-governors-meeting-14 (announcement of FINRA’s intended rulemaking 

codifying best practices).

244 NASAA is an organization that represents states 

securities regulators. See Our Role, NASAA, http://www.

nasaa.org/about-us/our-role (last visited May 12, 2016).

245 See Comment Letter from William Beatty, President, 

NASAA, to FINRA Dispute Resolution Task Force 

(Aug. 31, 2015), http://nasaa.cdn.s3.amazonaws.com/

wp-content/uploads/2011/07/NASAA-ExpungementLetter-enclosure.pdf. NASAA provided two comment 

letters to the Task Force. The above NASAA letter 

focused exclusively on expungement. CRD is maintained 

by FINRA on behalf of both FINRA and NASAA.

246 Final Report, supra note 219, at 28.

247 Id. at 55 (Expungement, item 1).

248 Id. at 27.

249 Id. at 55 (Expungement, item 3).

250 Id. at 28.

251 See id. See also, id. at 55 (Expungement, item 2). 

In October 2013, FINRA published its Expanded 

Expungement Guidance. In February 2014, FINRA 

revised its training for all arbitrators. See Exchange Act 

Release No. 34-72649 (July 22, 2014) [79 FR 43809, 

43811 (July 28, 2014)] (order approving FINRA Rule 

2081). The Task Force’s recommendation for additional 

training would presumably expand on the pre-existing 

training already available to arbitrators although the 

Task Force does not specify what areas are insufficiently 

covered by the existing training program.

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

253 Id.

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

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

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

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

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

include several enumerated items, and it may include 

“any other information, as determined appropriate by 

the Investor Advocate.”

258 For the full versions of the recommendations, see

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

259 17 C.F.R. §§ 200.735-3(b)(2)(i), 230.122 (2014); Exchange Act § 24(b), 15 U.S.C. § 78x; 5 U.S.C. § 552a(i)

(1); SECR18-2, Section 8.5 (Nonpublic Information) 

(July 31, 2005).

260 Supra note 150. 
54 | OFFICE OF THE INVESTOR ADVOCATE

261 SEC, Recommendation of the Investor Advisory 

Committee: Empowering Elders and Other Investors: 

Background Checks in the Financial Markets (July 16, 

2015), http://www.sec.gov/spotlight/investor-advisorycommittee-2012/final_iac_backgroundcheck_recommendation_071615.pdf. 

262 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.

263 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.

264 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-white-letter-tosifma-ici-t2.pdf.

265 SEC, Notice of Filing of Proposed Rule Change 

Consisting of Proposed Amendments to Rules G-12 and 

G-15 to Define Regular-Way Settlement for Municipal 

Securities Transactions as Occurring on a Two-Day 

Settlement Cycle and Technical Conforming Amendments, Exchange Act Release No. 77364 (Mar. 14, 2016) 

[81 FR 14906 (Mar. 18, 2016)], http://www.sec.gov/

rules/sro/msrb/2016/34-77364.pdf.

266 SEC, Comments on MSRB Rulemaking, http://www.sec.

gov/comments/sr-msrb-2016-04/msrb201604.shtml.

267 FINRA, Regulatory Notice 16-09, Shortening the 

Settlement Cycle for Securities to T+2 (Mar. 2016), 

https://www.finra.org/sites/default/files/notice_doc_file_

ref/Regulatory-Notice-16-09.pdf.

268 Exchange Act Rule 14a-2(a)(1), 17 C.F.R. § 240.14a-2(a)

(1) (2015).

269 SEC, Recommendations of the Investor Advisory 

Committee: Impartiality in the Disclosure of Preliminary 

Voting Results (October 9, 2014) http://www.sec.gov/

spotlight/investor-advisory-committee-2012/impartialitydisclosure-prelim-voting-results.pdf.

270 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/impartialitydisclosure-prelim-voting-results.pdf. 

271 Staff of the SEC, Report on the Review of the Definition 

of “Accredited Investor” (Dec. 18, 2015), https://www.

sec.gov/corpfin/reportspubs/special-studies/reviewdefinition-of-accredited-investor-12-18-2015.pdf.

272 Id. at 89.

273 Id.

274 Id. at 90-91.

275 Id.

276 Id. at 91.

277 Id. at 94-96.

278 SEC, Recommendation of the Investor Advisory 

Committee: Crowdfunding Regulations (Apr. 10, 

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

279 SEC, Final Rule, Crowdfunding, Securities Act Release 

No. 9974 (Oct. 30, 2015) [80 FR 71387 (Nov. 16, 

2015)] [hereinafter Crowdfunding Final Rule], http://

www.sec.gov/rules/final/2015/33-9974.pdf.

280 Id. at 25-26.

281 Id. at 204, 209.

282 Id. at 209.

283 Id. at 210-11.

284 Id. at 182.

285 Id. at 277-78.

286 Rule 301 (a) of the Crowdfunding Regulation requires an 

intermediary to have a reasonable basis for believing that 

an issuer seeking to offer and sell securities through the 

intermediary’s platform complies with the crowdfunding 

requirements. “The specific steps an intermediary 

should take to determine whether it can rely on an issuer 

representation may vary, but should be influenced by 

and tailored according to the intermediary’s knowledge 

and comfort with each particular issuer,” according 

to the Adopting Release. “We believe this approach is 

generally consistent with the view of one commenter that 

suggested a tiered approach to compliance obligations 

where intermediaries should conduct more rigorous 

compliance reviews and background checks as risk 

factors increase.” Id. at 169.

287 Id. at 191-95.

288 Id. at 193.

289 Id. at 186-87.

290 Id. at 392.

291 SEC, Recommendation of Investor Advisory 

Committee: Decimalization and Tick Sizes (Jan. 31, 

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

292 SEC, Order Directing the Exchanges and the Financial 

Industry Regulatory Authority To Submit a Tick Size 

Pilot Plan, Exchange Act Release No. 72460 (June 24, 

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

293 SEC, Order Approving the National Market System Plan 

to Implement a Tick Size Pilot Program, Exchange Act 

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

13, 2015)], http://www.sec.gov/rules/sro/nms/2015/34-

74892.pdf.
REPORT ON OBJECTIVES: FISCAL YEAR 201 7 | 55

294 Id. at 68 n.269.

295 SEC, Order Granting Exemption From Compliance 

With the National Market System Plan To Implement 

a Tick Size Pilot Program. Exchange Act Release No. 

76382 (Nov. 6, 2015) [80 FR 70284 (Nov. 13, 2015)], 

http://www.gpo.gov/fdsys/pkg/FR-2015-11-13/pdf/2015-

28795.pdf.

296 Id. at 70285.

297 See FINRA, Tick Size Pilot Program, http://www.finra.

org/industry/tick-size-pilot-program.

298 SEC, Recommendation of the Investor Advisory 

Committee: Legislation to Fund Investment Adviser 

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

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

299 Id.

300 SEC, Budget Reports, FY 2015 Congressional Budget 

Justification, FY 2015 Annual Performance Plan and FY 

2013 Annual Performance Report (Mar. 7, 2014), at 5,

https://www.sec.gov/about/reports/secfy15congbudgjust.

pdf (last visited May 12, 2016).

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

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

pdf (last visited May 12, 2016); SEC, FY 2016 Budget 

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

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

visited May 12, 2016).

302 SEC, Budget Reports, FY 2017 Congressional Budget 

Justification, FY 2017 Annual Performance Plan and FY 

2015 Annual Performance Report: The FY 2017 (Feb. 

9, 2016), at 5, http://www.sec.gov/about/reports/secfy17congbudgjust.pdf (last visited May 12, 2016).

303 Mark Wyatt, OCIE Director, SEC, Remarks before 

the IAC (April 14, 2016), video replay available at 

http://www.sec.gov/video/webcast-archive-player.

shtml?document_id=041416iac.

304 SEC, Recommendation of the Investor Advisory 

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

2013), http://www.sec.gov/spotlight/investor-advisorycommittee-2012/fiduciary-duty-recommendation2013.pdf. 

305 Mary Jo White, Chair, SEC, Testimony before the 

H. Subcomm. on Fin. Services: Examining the SEC’s 

Agenda, Operations and FY 2016 Budget Request, 

113th Cong. (Mar. 24, 2015), http://www.sec.gov/news/

testimony/2015-ts032415mjw.html.

306 Mary Jo White, Chair, SEC, Testimony before the IAC 

public meeting (April 9, 2015), http://www.sec.gov/video/

webcast-archive-player.shtml?document_id=investoradvisory-committee-040915. 

307 SEC, Recommendations 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. 

308 See SEC, https://www.sec.gov/spotlight/proxy-votingroundtable.shtml (last visited May 12, 2016).

309 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, Chicago, 

IL (June 25, 2015), https://www.sec.gov/news/speech/

building-meaningful-communication-and-engagementwith-shareholde.html. 

310 Id.

311 SEC, Recommendations of the Investor Advisory 

Committee Regarding the SEC and the Need for the 

Cost Effective Retrieval of Information by Investors

(July 25, 2013), http://www.sec.gov/spotlight/investoradvisory-committee-2012/data-tagging-resolution72513.pdf. 

312 Regulation ATS-N, Exchange Act Release No. 76474, 

supra note 36; see also SEC, Press Release, SEC Proposes 

Rules to Enhance Transparency and Oversight of Alternative Trading Systems (Nov. 18, 2015), http://www.sec.

gov/news/pressrelease/2015-261.html.

313 Regulation ATS-N, Exchange Act Release No. 76474, 

supra note 36, at 167. 

314 Investment Company Reporting Modernization, 

Investment Company Act Release No. 31610 (May 20, 

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

315 Use of Derivatives by Registered Investment Companies 

and Business Development Companies, Investment 

Company Act Release No. 31933 (Dec. 11, 2015) [80 

FR 80884 (Dec. 28, 2015)], at 380-381, http://www.

sec.gov/rules/proposed/2015/ic-31933.pdf; see SEC, 

Press Release, SEC Proposes New Derivatives Rules for 

Registered Funds and Business Development Companies 

(Dec. 11, 2015), http://www.sec.gov/news/pressrelease/2015-276.html. 

316 Crowdfunding Final Rule, supra note 279.

317 Id. at 40-43.

318 Id. at 42.

319 Establishing the Form and Manner with which 

Security-Based Swap Data Repositories Must Make 

Security-Based Swap Data Available to the Commission, 

Exchange Act Release No. 76624 (Dec. 11, 2015) [80 

FR 79757 (Dec. 23, 2015)], http://www.sec.gov/rules/

proposed/2015/34-76624.pdf.

320 Id. at 1.
56 | OFFICE OF THE INVESTOR ADVOCATE

321 Disclosure of Payments by Resource Extraction Issuers, 

Proposed Rule, Exchange Act Release No. 76620 (Dec. 

11, 2015) [80 FR 80057 (Dec. 23, 2015)] [hereinafter 

Disclosure of Payments], http://www.sec.gov/rules/

proposed/2015/34-76620.pdf; see SEC, Press Release, 

SEC Proposes Rules for Resource Extraction Issuers 

Under Dodd-Frank Act (Dec. 11, 2015), http://www.sec.

gov/news/pressrelease/2015-277.html.

322 Disclosure of Payments, supra note 321, at 20.

323 See Report on Activities, Fiscal Year 2015, supra note 24, 

at 34-35; Report on Objectives, Fiscal Year 2016, supra 

note 62, at 34-35.

324 Open-End Fund Liquidity Risk Management Programs; 

Swing Pricing; Re-Opening of Comment Period for 

Investment Company Reporting Modernization Release, 

Securities Act Release No. 9922 (Sept. 22, 2015) [80 FR 

62274 (Oct. 15, 2015)].

325 Registration Process for Security-Based Swap Dealers and 

Major Security-Based Swap Participants, Exchange Act 

Release No. 75611 (Aug. 5, 2015) [80 FR 48963 (Aug. 

14, 2015)].

326 Listing Standards for Recovery of Erroneously Awarded 

Compensation, Securities Act Release No. 9861(July 1, 

2015) [80 FR 41143 (July 14, 2015)].

327 Investment Company Reporting Modernization, 

Securities Act Release No. 9776 (May 20, 2015) [80 FR 

33590 (June 12, 2015)]. 

328 Pay Versus Performance, Exchange Act Release No. 

74835 (Apr. 29, 2015) [80 FR 26329 (May 7, 2015)].

329 Amendments for Small and Additional Issues Exemptions Under the Securities Act (Regulation A), Securities 

Act Release No. 9741 (Mar. 25, 2015) [80 FR 21805 

(Apr. 20, 2015)].

330 Asset-Backed Securities Disclosure and Registration, 

Securities Act Release No. 9638 (Sept. 4, 2014) [79 FR 

57184 (Sept. 24, 2014)].

331 Money Market Fund Reform; Amendments to Form PF, 

Securities Act Release No. 9616 (July 23, 2014) [79 FR 

47736, 47944 (Aug. 14, 2014)].

332 SEC, Recommendation of the Investor Advisory 

Committee: Target Date Mutual Funds (Apr. 11, 

2013), http://www.sec.gov/spotlight/investor-advisorycommittee-2012/iac-recommendation-target-date-fund.pdf. 

333 Investment Company Advertising: Target Date 

Retirement Fund Names and Marketing, Exchange Act 

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

23, 2010)].

334 Investment Company Advertising: Target Date 

Retirement Fund Names and Marketing, Securities Act 

Release No. 9570 (Apr. 3, 2014) [79 FR 19564 (Apr. 9, 

2014)].

335 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). 

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, sec. 201(a), 126 Stat. 306, 313 

(2012).

336 Eliminating the Prohibition Against General Solicitation 

and General Advertising in Rule 506 and Rule 144A 

Offerings, Securities Act Release No. 9415 (July 10, 

2013) [78 FR 44771 (July 24, 2013)]. 

337 Disqualification of Felons and Other “Bad Actors” from 

Rule 506 Offerings, Securities Act Release No. 9414 

(July 10, 2013) [78 FR 44729 (July 24, 2013)].

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

Securities Act Release No. 9416 (July 10, 2013) [78 FR 

44806 (July 24, 2013)].

OFFICE OF THE 

INVESTOR ADVOCATE

U.S. Securities an

Exchange Commission

100 F Street NE

Washington, DC 20549

202.551.33