SEC Chair Mary Jo White Announces Departure Plans

SEC Chair Mary Jo White, after nearly four years as the agency's head, earlier this week announced that she intends to leave at the end of the Obama Administration. Under Chair White's leadership, the Commission strengthened protections for investors and the markets through transformative rulemakings that addressed major issues highlighted by the financial crisis. The Commission also instituted a new approach to enforcement that has resulted in greater accountability and record actions through, among other things, the use of admissions of wrongdoing and enhanced data analytics and technology.

Chair White, who became the 31st Chair of the SEC in April 2013, will be one of the SEC's longest serving Chairs.

"It has been a tremendous honor to work alongside the incredibly talented and dedicated SEC staff members who do so much every day to protect investors and our markets," said Chair White. "I am very proud of our three consecutive years of record enforcement actions, dozens of fundamental reforms through our rulemakings that have strengthened investor protections and market stability, and that the job satisfaction of our phenomenal staff has climbed in each of the last three years. I also want to express my appreciation for the engagement and dedication of my fellow Commissioners and my financial regulator colleagues, past and present."

In addition to completing the vast majority of the agency's mandates under the Dodd-Frank Act and all of its mandates under the JOBS Act, Chair White's leadership has advanced the agency's mission through other critical rulemakings and built robust and effective frameworks for the SEC's regulatory regimes going forward.

"My duty has been to ensure that the Commission implemented strong investor and market protections, and to establish an enduring foundation for future progress in the most critical areas - asset management regulation, equity market structure and disclosure effectiveness," said Chair White. "Thanks to the hard work and dedication of the SEC's staff, we have accomplished both."

Chair White drove many important rules and other policy measures to completion. Under her leadership, the Commission advanced more than 50 significant rulemaking initiatives, including:

• Fundamental reforms to the money market fund industry and unprecedented new disclosures and protections for mutual fund investors in a major initiative to strengthen regulation of the $67 trillion asset management industry
• Enhanced equity market structure oversight, including wide-ranging new controls on how key market participants handle technology and systems issues
• A comprehensive framework for enhancing the effectiveness of corporate disclosure for investors
• Extensive new safeguards for the financial system and for investors in the more than $7 trillion security-based swap market
• New ways for smaller companies to raise capital needed to grow their businesses
• New post-crisis restrictions on proprietary trading and investments by broker-dealers and other financial institutions through the Volcker rule
• Major enhancements to transparency and risk management for asset-backed securities, which were a significant contributor to the financial crisis
• Strong operating standards for the clearing agencies that stand at the center of our financial system
• Extensive reforms to the regulation of credit rating agencies and how they address conflicts of interest that can harm investors
• First-ever regulatory framework for municipal advisors who are critical to the capital raising activities of thousands of local governments
• Modernized rules of practice for conducting administrative proceedings, including providing expanded rights of discovery

To enhance accountability of those who violate the securities laws, Chair White implemented the Commission's first-ever policy to require admissions of wrongdoing in certain cases where heightened accountability and acceptance of responsibility is appropriate. Thus far, the Commission has required admissions from more than 70 defendants, including 44 entities and 29 individuals.

During Chair White's tenure, the Commission brought more than 2,850 enforcement actions, more than any other three-year period in the Commission's history, and obtained judgments and orders totaling more than $13.4 billion in monetary sanctions. The Commission charged over 3,300 companies and over 2,700 individuals, including CEOs, CFOs, and other senior corporate officers.

The record number of enforcement actions over the last three fiscal years against companies and senior executives involved many "first of their kind" cases in asset management, market structure and public finance. Other major cases involved insider and abusive trading, violations of anti-corruption rules and misconduct in accounting and financial reporting. In the last year alone, the Commission brought a record 868 enforcement actions. And for the first time, the Commission devoted significant resources and emphasis on using cutting edge data analytics to uncover and investigate misconduct resulting in numerous enforcement actions involving insider trading, asset management and complex financial instruments.

As a result of the successful whistleblower program, the Commission has awarded more than $100 million, since inception — virtually all during Chair White's tenure — to whistleblowers who provided key original information that led to successful enforcement actions.

Under Chair White's leadership, the Commission made significant enhancements to its examination program, including increasing staff by about 20 percent by hiring new examiners where funding permitted and redeploying staff from other program areas to heighten focus on the fast-growing investment management industry.

The exam program also increased its use of advanced quantitative techniques to enable examiners to detect misconduct by more quickly analyzing large amounts of data. Over the past year, the examination program conducted more than 2,400 formal examinations of registrants, an increase over each of the prior seven fiscal years. The Commission also enhanced technology in its examination program through the National Exam Analytics Tool (NEAT), which enables examiners to analyze large volumes of trading data much more efficiently.

Chair White serves as a member of the Financial Stability Oversight Council and on several other domestic and international organizations, including the International Organization of Securities Commissions, the Financial Stability Board, the International Financial Reporting Standards Foundation Monitoring Board, the Financial and Banking Information Infrastructure Committee, and the Federal Housing Finance Oversight Board.

Chair White added, "It has been and will always be critical for this agency and the public that the SEC remain truly independent. That independence is crucial to our ability to protect investors, safeguard our markets and facilitate the capital formation that fosters innovation and the growth that is essential to our national economy."

Prior to her arrival at the Commission, Chair White spent decades as a federal prosecutor and securities lawyer. As the U.S. Attorney for the Southern District of New York from 1993 to 2002, she prosecuted cases involving complex securities and financial institution frauds, other white collar crime and international terrorists. She also served as an Assistant U.S. Attorney and was Chief Appellate Attorney of that office's Criminal Division. She served as Acting U.S. Attorney for the Eastern District of New York as well as the First Assistant U.S. Attorney. In private practice, she was a litigation partner and chair of the litigation department of Debevoise & Plimpton LLP, overseeing more than 200 lawyers. Chair White is also a member of the Council on Foreign Relations and the American College of Trial Lawyers.

How Trump's Victory Could Affect U.S. Industries

You've thought it, most everyone is asking it: what does a Trump presidency look like for our nation's industries? It is no surprise that the industry most likely to feel the implications is the highly regulated health care industry. From the early days of his campaign, the president-elect has vowed to "repeal and replace" the Affordable Care Act. While some details of Trump's plan have been revealed, much of the intricacies are unknown and this is keeping health care companies and their investors on edge.

Among the sectors expected to benefit are defense companies. "We expect the Pentagon can now view Trump as the guarantor of the extra ~$25B in funding that is in the current FY'18 plan (but we would lose under sequester) to keep funding flat with an elevated FY'17," Credit Suisse analyst Robert Spingarn said in a note.

Engineering and construction companies could also be at an advantage, as Trump has pledged to create jobs via the construction of a wall along the Mexican/U.S. border, as well as road, highway and bridge repairs. Jason Pride, director of investment strategy at wealth management firm Glenmede, which oversees $32 billion under management, in a note to clients said that with a Trump presidency and Republican-controlled Congress, the promise to increase infrastructure spending, "has the highest likelihood of policy follow-through."

Though financials stocks have enjoyed a robust rally of more than 10% over the past several sessions following Trump's victory, some analysts cautioned that the surge is "too much." And indeed, financials were down 1.1% in Wednesday's morning trade.

"Take profits and selectively reduce exposure," Robert W. Baird analyst David George wrote in a note to clients Wednesday.

George cut his rating on Bank of America to neutral from outperform, but increased his stock price target to $18 from $17 and said he recommends waiting for a "larger pullback" before adding to positions.

"We think the bank rally post election...has largely discounted potential benefits from rising interest rates, lower tax rates and more aggressive capital return," George wrote. "We believe investors should book gains and wait for more evidence that the structural improvement in macro trends and regulations will materialize."

George also downgraded Capital One Financial Corp. to neutral from outperform, and Fifth Third Bancorp to underperform from neutral.

SEC Greenlights Plan to Create Consolidated Audit Trail

The Securities and Exchange Commission recently voted to approve a national market system (NMS) plan to create a single, comprehensive database known as the consolidated audit trail (CAT) that will enable regulators to more efficiently and thoroughly track all trading activity in the U.S. equity and options markets.

"With the approval and ultimate implementation of CAT, the Commission's regulatory capacity strongly embraces 21st century technology, enabling the Commission and the SROs to harness data and technology to more effectively oversee market participants," said SEC Chair Mary Jo White. "Through the CAT, regulators will have more timely access to a comprehensive set of trading data, enabling us to more efficiently and effectively conduct research, reconstruct market events, monitor market behavior, and identify and investigate misconduct."

The NMS plan details the methods by which SROs and broker-dealers will record and report information, including the identity of the customer, resulting in a range of data elements that together provide the complete lifecycle of all orders and transactions in the U.S. equity and options markets. The NMS plan also sets forth how the data in the CAT will be maintained to ensure its accuracy, integrity and security

The Commission modified several provisions of the NMS plan in response to public comments and recommendations from the SROs. For example:

• The Commission strengthened several of the data security requirements of the NMS plan, including with respect to personally identifiable information.
• Tightened the clock synchronization standards for SROs to within 100 microseconds of the time maintained by the National Institute of Standards and Technology to enable regulators to better sequence order events across multiple exchanges and required the SROs to assess industry standards for clock synchronization based on the type of market participant or system, rather than the industry as a whole, and reflect that refined assessment annually in a report submitted to the Commission.
• Enhanced the CAT plan governance by expanding the membership of the advisory committee to include an additional institutional investor representative and a representative of a service bureau that provides CAT reporting services.
• Accelerated the deadline for the SROs to submit proposals to retire regulatory data reporting systems that will be rendered obsolete by CAT, to reduce the burden on broker-dealers of reporting to multiple systems.

Within two months of the approval of the NMS plan the SROs must select a plan processor to build and operate the CAT. SROs will be required to begin reporting to the CAT within one year of approval, with large broker-dealers following the next year and small broker-dealers the year after.

Markets at a Glance

U.S. stocks are mixed Wednesday morning as financial stocks return some of the huge gains they've made since last week's presidential election.

After rising for seven consecutive days the Dow Jones industrial average slid 59 points to 18,876 in early trade while The Standard & Poor's 500 index lost 3 points to 2,176. After an initial dip, the Nasdaq composite rose 14 point to 5,290.

The greenback continued to rise and reached its highest mark in 13 years; compared to the yen, the dollar slipped to 109.24 yen from 109.32 yen Tuesday while the euro slid to $1.0702 from $1.0718.

Benchmark U.S. crude lost $0.39 to $45.42 per barrel in New York. Brent crude, which is used to price international oils, lost $0.37 to $46.58 a barrel in London. The price of U.S. crude oil rallied nearly 6% on Tuesday on hopes that oil-producing OPEC countries will agree to a production cut that would boost prices. Tuesday's move was the biggest gain for oil in seven months.

The yield on the 10-year Treasury note rose to 2.24% from 2.22%. Bond yields, which are used to set interest rates on various loans, including mortgages, are at their highest levels since the beginning of the year, driven by investor expectations that the infrastructure spending and tax-cut plans of President-elect Donald Trump could lead to higher inflation.

Snapchat Files for IPO for Possible Valuation of $25B

Vince, California-based Snap (formerly Snapchat) plans to go public early next year in an IPO expected to value the messaging app at $20 billion to $25 billion, making it the largest U.S. technology IPO since Facebook's $81.2 billion debut in 2012. The move could also pave the way for other "unicorns" to go public.

Snap started in 2012 as a free mobile app that allows users to send photos that disappear within a designated number of seconds. It has 150 million active users with millennial-driven demographics that make it an attractive platform for advertisers.

The company filed under the Securities and Exchange Commission's Jumpstart Our Business Startups Act, which enables companies with revenues of less than $1 billion to secretly file for an IPO and quietly test investor interest without revealing financials. According to documents leaked to TechCruch, Snap is already targeting as much as $1 billion in revenue for 2017.

As one of the so-called "unicorns" – private companies valued at more than a billion dollars – a successful IPO could break the seal for even bigger IPOs from sharing services like Uber and Airbnb. As it stands, founders have been hesitant to stray from their massive private-investor interest to sell shares to the public.

It's worth noting that fellow unicorns Uber and Airbnb have higher values than Snap, but for the time being they don't appear to be making solid moves toward IPOs.

December Rate Rise Possible, says Fed's Bullard

The Federal Reserve recently decided to not raise the bank's key interest rate, though Fed Chair Janet Yellen previously said the incentives for doing so has "strengthened." Federal Reserve Bank of St. Louis James Bullard Wednesday hinted toward an interest-rate increase in December, noting the short-term outlook for monetary policy is unchanged following the results of last week's presidential election.

"A single policy rate increase, possibly in December, may be sufficient to move monetary policy to a neutral setting," Bullard said in a speech at an event hosted by UBS Group AG in London.

Bullard said that despite the surprise victory in the Trump camp, it would take time to see the economic effects of his presidency. Bullard told reporters that his own view of the economy hasn't changed since the election, as that data showed continued progress toward the Fed's goals on unemployment and inflation.

"Given the data I have to date, I haven't changed my outlook," he said.

The investment community appears to echo his sentiment; following the Fed's announcement that rates were staying put, investors believed there was a 71% chance of an increase at the end of the Fed's meeting on December 14.

Citigroup CFO: U.S. Tax Rate Decline could deliver $4B Charge

Citigroup CFO John Gerspach Wednesday warned that if federal corporate tax rates decline 20% under President-elect Donald Trump, the company may have to take a $4 billion charge to profits to reflect lower values for its deferred tax assets.

At a webcast investor conference, Gerspach called the estimated charge a "rough, top-level assessment" of consequences of possible tax reforms, but said a charge of that size and nature wouldn't hurt the amount of capital that Citigroup reports to regulators under rules designed to ensure the soundness of banks.

Citigroup has $45 billion of deferred tax assets largely left over from the tax treatment of losses during the financial crisis. The bank had burned about $10 billion in the last four years.

If tax reforms were to make a big change in the treatment of liabilities outside of the United States, the bank might have to take a charge of as much as $12 billion and report a $4 billion reduction in regulatory capital, Gerspach said.

"There are a lot of moving pieces," he added. "To the extent these changes were implemented over time, those impacts would likely be lower."

Citigroup expects its capital markets business in the fourth quarter to be "meaningfully better" than a year earlier, but down seasonally from the third quarter, Jamie Forese, chief executive for the Institutional Clients Group, said at the conference.