shiny object of the day, as convenient as that sometimes may be." Gallagher lauded the agency for being introspective, "analyzing the efficacy of our programs and rulesets, using all available data to inform decisions about whether or how to adapt to changed circumstances" all without a Congressional mandate. He argued that this approach is a departure from "the lawyer-driven mentality that has far too long dominated the SEC's oversight of this industry." According to Gallagher, the proposal represents a "ground up approach" that focuses on identifying risk, minimizing burden, and providing better information. Gallagher specifically highlighted the importance of collecting new information on debt security holdings as the SEC contemplates reforming fixed income markets.
Gallagher also took the opportunity to push back against the FSOC, calling the idea that "SEC's asset management regulatory program is deficient and that the industry and its participants pose systemic risks" "preposterous." He continued that, while the SEC should not "promulgate rules to stave off the nonsense of bank regulators," he believes that the proposals would "enhance our oversight of an incredibly important segment of the capital markets, and at the same time illustrate to the bank regulator illuminati that the SEC is more than up to the task."
Commissioner Luis Aguilar joined in applauding the rules and recounted his experience of joining the SEC shortly before the financial crisis and being told by the then-Director of the Division of Investment Management that staff was "calling around to get information." Aguilar emphasized that the lack of "timely, reliable information" made it difficult to assess the status of funds. Aguilar highlighted the benefits of enhanced data from Form N-MFP since its adoption in 2010 and his hope that the additional information that would be gathered under the proposal would yield similar benefits.
Aguilar, however, expressed concern that allowing shareholder reports to be posted online rather than hardcopy mailings could "result in unintended consequences, such as creating unnecessary hurdles that could discourage shareholders from reading the shareholder reports." He pointed to the e-proxy rules that permitted issuers to post proxy materials online in conjunction with providing shareholders notice. Aguilar suggested that investor participation in the proxy process for companies that relied on this method declined 30% for large investors and 60% for smaller investors. Thus, he suggested that the Commission "proceed with caution" on this portion of the proposal.
Commissioner Michael Piwowar supported the initiatives, but expressed concern that the requirement in the proposal that funds utilize a "legal entity identifier" on Forms N-PORT and N-CEN that is "assigned or recognized by the Global LEI Regulatory Oversight Committee or the Global LEI Foundation" would "result in the Commission helping to establish a monopoly for the provision of legal identifiers." He also expressed concern regarding one portion of the proposed Form N-PORT. The proposal would require disclosure of either a description of the components (for derivatives with a notional value of less than 1% of the NAV) or more detailed information including a list of the components and the number of shares (for all other derivatives) for derivatives based on indices with non-publicly disclosed components. Piwowar noted that many index providers may not be willing to provide this information, thus hurting index providers and funds that utilize the indices for derivatives.