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SEC Commish Jay Clayton wants to stay in his lane and keep a tight focus, he tells Penn audience

Clayton addressed Penn's law school Thursday night, but gave a wide-ranging speech on his role as Wall Street's policeman.

Walter "Jay" Clayton, commissioner at the SEC, speaking Thursday at Penn.
Walter "Jay" Clayton, commissioner at the SEC, speaking Thursday at Penn.Read more

Walter “Jay” Clayton, commissioner of the Securities and Exchange Commission, the regulator of Wall Street, is not interested in being dragged into debates about executive compensation and possible antitrust violations by mutual fund giants like Vanguard, BlackRock, and State Street for growing too large.

“I love competition. But being an antitrust regulator — that’s not my ball of wax,” he said in an interview.

Clayton was in the city Thursday speaking at University of Pennsylvania’s newly renamed Carey law school, amid proposals by the watchdog agency to put limits on individual investors who put forth shareholder proxies.

“I’m happy to help antitrust authorities, but that’s not my job," he said.

This summer, Vanguard representatives met with Robert Jackson Jr., a Democratic commissioner at the SEC and presented its own research showing that common ownership hasn’t harmed competition, the Wall Street Journal reported.

Some investors want big firms to use their cash hoards to buy back shares. But Clayton sidestepped that debate too. “We do not have the authority to tell someone to buy back stock,” he said.

New rules

The SEC dubs its new shareholder proxy rules a “modernization.”

“I don’t like that someone who buys $2,000 worth of stock, files a proposal, forces the company to put the proposal in front of all shareholders, and sells the stock as soon as they got the question out there,” Clayton explained. “That just doesn’t seem like the right avenue. But if you held it for three years, and have $2,000, you can get your question on the proxy.”

A shareholder currently must hold at least $2,000 for at least one year to submit a proposal. The SEC would change that to three thresholds, any one of which would make a shareholder eligible:

  1. continuous ownership of at least $2,000 of the company’s securities for at least three years;

  2. continuous ownership of at least $15,000 of the company’s securities for at least two years; or

  3. continuous ownership of at least $25,000 of the company’s securities for at least one year.

The rules are much stricter to put forth a shareholder proposal for consecutive years:

  1. Currently investors can resubmit if they hold 3 percent, 6 percent, and 10 percent of stock for matters voted on once, twice, or three or more times in the last five years, respectively; those would be replaced with 5 percent, 15 percent, and 25 percent under the proposal.

Consumer advocates are disappointed.

“These new rules are a setback to transparency and accountability,” said Jeff Perkins, executive director of the Philadelphia-based socially responsible investment fund Friends Fiduciary, which opposes the new SEC rules. “This also means that few resolutions will appear at companies with dual share classes, or which have large insider ownership.”

Markets, since the 2008 financial crisis

On capital markets, “there’s more debt now outside the banking system. Through regulation, we’ve shored up the banking system. That’s shifted the debt everywhere” including to hedge funds and private equity.

Asked who would regulate these new risks, Clayton replied: “Me. Those risks have been transferred from banks to non-bank lenders and people who hold interests in funds. That’s the reality.”

“We, the government, made the choices that made this happen. We had easy money, we want the economy to grow, and we wanted to shore up the banking sector. We encouraged people to invest in funds. Add all those up, and it’s not a surprise we are where we are.”

As for risk, “we have to look at it in a different way than the way we looked at it in 2007. Look at capital markets and the banking markets, and you can’t view them in isolation.” One could sabotage the other.

Global debt now totals at least $246.5 trillion, or 320% of the world’s GDP. In the United States, non-financial corporate debt stands at almost $10 trillion, or almost 50% of America’s GDP.