Chairman Mary Shapiro, head of the Securities and Exchange Commission, telegraphed her upcoming regulatory priorities to the investor and financial community at a speech before the Council of Institutional Investor’s Spring 2009 Meeting (April 6, 2009). See: http://www.sec.gov/news/speech/2009/spch040609mls.htm

Chairman Shapiro defined the SEC’s principle responsibility -– investor protection –- as a challenge of ensuring that capital markets are both fair and efficient.

She listed her top four priorities in implementation of this charter:

1. Effectively structured markets.
2. Timely and reliable information.
3. Trustworthy professionals and intermediaries.
4. Strong enforcement.

Toward the first goal of ensuring that markets are structured effectively, Chairman Shapiro’s first efforts will be to convene a roundtable of experts to get a range of advice on short selling with an eye toward a proposed new rule limiting short sales in a down market.

Interesting also are her first efforts to enhance disclosure and transparency by focusing on the leadership and compensation strategies of corporate boards of directors. In June, she will convene a commission to review enhanced corporate board disclosure of the following;

a. director nominee experience, qualifications, and skills
b. boards’ reasons for choosing a leadership structure
c. boards’ overall compensation approach (beyond simply the highest paid executives) and possible compensation consultants conflict of interest.

Chairman Shapiro said she believes there are three pillars of sound compensation practices:
-- effective governance of compensation
-- effective alignment of compensation with prudent risk taking
-- effective stakeholder supervisory oversight and engagement.

She also indicated she wants to increase proxy access to ensure that company owners have a meaningful opportunity to nominate directors.

Chairman Shapiro envisions tougher regulation of market professionals and intermediaries:

a. annual unannounced 3rd party audits of those professionals with custody of client assets
b. registration of hedge funds and hedge fund advisors
c. enhanced disclosure of credit agencies’ assumptions underlying their methodologies, their fees received from securities issuers, and factors that could change ratings.

(In fact, The SEC convened an SEC Roundtable on Credit Rating Agencies on April 15, 2009: See: http://www.sec.gov/news/speech/2009/spch041509mls.htm)

d. enhanced oversight of the credit default swaps market, including greater reporting requirements and recordkeeping rules.
e. enhanced disclosure and investor protections for municipal securities
f. enhanced disclosure for asset-backed securities.

The SEC’s Enforcement arm will be strengthened, including new internal training for enforcement staff. More details about her plans to bolster enforcement were covered in an earlier speech before the Practicing Law Institute’s "SEC Speaks in 2009" Program (February 6, 2009). See: http://www.sec.gov/news/speech/2009/spch020609mls.htm

Chairman Shapiro seems to be off to a great start.