SEC Chief: Vote Near on Market Crackdown

By Kevin Drawbaugh

WASHINGTON (Reuters) - The U.S. Securities and Exchange Commission will vote soon on new governance and disclosure rules for the groups that oversee America’s stock markets, SEC Chairman William Donaldson said on Thursday.

Saying that the SEC is "waging an uphill fight" against corporate wrongdoing, Donaldson said that recently elevated stock market listing standards should apply not only to corporations, but to the markets themselves, too.

"We should consider holding them to higher corporate governance standards as well. The commission will soon be voting on new proposals to improve the governance and financial transparency of all self-regulatory organizations (SROs)," he said in remarks to be delivered at the Conference Board’s annual dinner in New York City.

The markets would have to start disclosing sensitive information, such as executive pay levels, under rule proposals being developed by the SEC, sources told Reuters last week.

After last year’s scandal over the pay of former New York Stock Exchange Chairman Richard Grasso, the SEC staff is working on disclosure and governance rules to take before the five-member commission, the sources said.

The rules, if adopted, would force the NYSE and other SROs that govern the markets to disclose for the first time many of the same kinds of financial information that corporations do.

Some of the disclosure would be public and some would be to the SEC only, sources said, adding the package of proposals will also include new governance rules affecting SRO boards.

The SEC is also expected to issue a "concept release," or rough draft, laying out the big picture on SROs and seeking input from the public on the future of market self-regulation.

SEC CHIEF TAKES LOBBYISTS TO TASK

The SEC has implemented many new rules for companies and expanded its staff to nearly 4,000 from 3,000 since the onset of the scandals that started almost three years ago with the downfall of Enron Corp., the SEC chairman said.

Still, he said: "While the SEC has made real and lasting progress against malfeasance, we are, nonetheless, waging an uphill fight."

The SEC needs to take a more offensive position in going after "trouble spots," Donaldson said in a question-and-answer session following his speech. "We can’t afford to arrive at the scene of the accident after a fraud has happened."

He asked corporate leaders to uphold higher standards of integrity. At the same time, stockholders need to take responsibility for the actions taken by the companies they own, Donaldson said.

"It’s time for shareholders of all sorts ... to exercise their voting prerogatives themselves, not to subcontract them," Donaldson said. "You can’t just remain passive."

He also took a swipe at business lobbying groups.

"Too often certain business organizations, structured to represent ’the business community,’ are dedicated in deed and rhetoric to perpetuating a myopic focus on the status quo," said Donaldson, a former investment banker.

"Too many are still intent on maintaining corporate prerogatives and preserving a narrow focus on short-term financial performance, often to the detriment of other goals of integrity and long-term performance," he said.

The U.S. Chamber of Commerce last month sued the SEC over a new rule that will force mutual fund boards to have independent chairmen. The rule was adopted after improper trading scandals engulfed the $7.4 trillion U.S. mutual fund industry.

The chamber, which represents business interests, has also threatened to sue the SEC if it proceeds with a proposal that would give shareholders more access to proxy ballots for electing corporate directors.

The Business Roundtable, a coalition of powerful corporate CEOs, also has questioned the SEC’s authority in this area.

Donaldson told reporters at a news conference after the speech a date had been set for an SEC vote on its controversial hedge fund registration proposal for the end of October.

On Tuesday, sources close to the organization said an SEC vote on the proposal, which would require hedge fund advisors to register with the SEC, was tentatively set for Oct. 26, with passage likely.

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