Gary Gensler, SEC Chair, indicates that disclosure will be a major focus in the upcoming year.

The Securities and Exchange Commission's annual "SEC Speaks" event commenced on Tuesday, providing insights into the priorities for the SEC in the upcoming year.

The Practicing Law Institute hosts a forum where the SEC offers guidance to the legal community on rules, regulations, enforcement actions, and lawsuits. The event enables the SEC to communicate its key messages, with "disclosure" being a major focus this year.

Gary Gensler, the SEC Chair, stated in his introduction to the conference that we have a responsibility to update the rules of the road, with the goal of promoting trust, efficiency, competition, and liquidity in the markets. Along with Gensler, all the SEC division heads and senior staff will be giving presentations.

Discussions about shortening the securities settlement cycle from two days to one, expanding the definition of an exchange to include newer trading platforms, considering a change in the quoting increment for stock trades to sub-penny levels, establishing a best execution standard for broker-dealers, and increasing competition for individual investor orders will be held based on Gensler's introductory remarks.

The SEC's mission

The SEC's primary responsibility is to safeguard investors, ensure market integrity, and promote capital growth.

The Great Depression, which began after the 1929 stock market crash, was the most severe economic crisis of the last century.

In the 1920s, securities were often sold to the public with exaggerated claims, many of which turned out to be false. After the stock market crash in 1929, Congress investigated the cause and found that fraudulent claims and inadequate disclosure were major contributing factors.

The Securities Act of 1933 and the Securities Exchange Act of 1934 were passed by Congress, establishing the SEC to enforce the new laws. These laws required registration with the SEC for everyone involved in the securities business, mainly brokerage firms and stock exchanges.

The 1933 Act mandated disclosure of all relevant facts about an investment, allowing investors to make their own decisions about whether to purchase a bad investment.

The 1933 Act marked the beginning of federal regulation for the sale and distribution of securities in the US. Subsequently, the Investment Company Act of 1940 regulated mutual funds and eventually ETFs. Additionally, the Investment Advisers Act of 1940 mandated that investment advisers register with the SEC.

On the agenda

Gensler and his team will provide more information about their work at Tuesday's conference, which focuses on six divisions: disclosure, risk monitoring, and enforcement.

To safeguard investors, it is imperative to comprehend the risks they face. The economic and risk analysis division handles this task.

The 1933 Act requires disclosure at the core of the game, and the SEC's division of corporation finance ensures that Corporate America provides disclosures on issues that could materially affect companies, starting with an initial public offering and continuing when the company becomes publicly traded.

The SEC's National Exam Program is responsible for conducting examinations on investment advisers, investment companies, broker-dealers, and other corporate entities to ensure compliance with required disclosures. The SEC identifies areas of high concern, such as cybersecurity, crypto, money laundering, and climate change, and monitors these areas to ensure compliance. Current hot topics include climate change, crypto, and cybersecurity.

The ongoing debate centers on the scope of what must be disclosed, with some arguing that the latest regulations exceed the original SEC mandate. The SEC, however, maintains that its duty to safeguard investors encompasses the disclosure of climate risks.

The SEC can use the information they collect to suggest policy changes and, if they deem a company non-compliant, they can refer them to the feared enforcement division.

The SEC is involved in growing litigation related to securities laws violations, and they prosecute civil suits in federal courts. This division will provide an update on the litigation.

The Investment Company Act of 1940 and the Investment Advisers Act of 1940 govern the mutual funds, ETFs, and investment advisers that most people invest in through an advisor. The division responsible for monitoring investment companies and advisers will discuss new disclosure requirements, including those implemented in August 2023 for private fund advisers.

The monitoring of trading and markets involves everyone involved in trading, including broker-dealers, stock exchanges, and clearing agencies. As a result, we can anticipate updates on record-keeping requirements, a reduction in the trading cycle (the U.S. will switch to a one-day settlement from a three-day settlement on May 28, which is a significant change), and short sale disclosure.

Did we mention SPACs?

The SEC tightened the rules around disclosure of special purpose acquisition companies, or SPACs, in January. Trump's company, Truth Social, went public on March 22 through a merger with a SPAC known as Digital World Acquisition Corp. It is now trading as , and it made disclosures Monday that caused the stock to drop about 22%.

Under the new SPAC rules adopted by the SEC, executives marketing a company to be acquired by a SPAC are now legally liable for any statement made about future results, as they are assumed to be responsible for disclosures. Prior to these changes, executives often made wild claims about the future profitability of these businesses, which would have been impossible to make had a traditional initial public offering route been used.

IPOs do not have the "safe harbor" protection that companies do when making forward-looking statements, so their statements are usually more carefully worded.

SPACs do not have "safe harbor" legal protections for forward-looking statements, which makes them more vulnerable to lawsuits.

The message "Disclosure!" is likely to be the dominant refrain at the conference, even though Trump is unlikely to attend.