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Cox Addresses SEC Disclosure Initiatives, Global Regulation

In remarks at Chicago's Northwestern University, SEC Chairman Christopher Cox said he is absolutely convinced that the SEC's inspections and its enforcement activities deter fraud. He also believes its regulation of the exchanges maintains orderly and efficient markets and that its disclosure regime helps investors make sound decisions. Since he became chairman, Cox said he has focused on bringing plain English to disclosure documents and most recently with respect to the disclosure of executive compensation.

When Mr. Cox became chairman, he noted that the complaints about CEO pay were on the rise. Compensation disclosure too often was written to say as little as possible while avoiding legal liability, he said, rather than informing investors. Executive compensation matters for a number or reasons, Mr. Cox said, including the incentive to improve corporate performance. The SEC's executive compensation rules are intended to protect and advance the interests of shareholders, according to Mr. Cox.

This year's proxy statements for the first time will include a narrative explanation of why the company's compensation program is structured the way it is, the chairman advised. Investors will be told how the various levels and forms of executive compensation were chosen. The disclosure is required to be presented in plain English. The new disclosure will transform the landscape of public disclosure for the benefit of investors, in his view.

In other remarks at Northwestern's Securities Regulation Institute in Coronado, California, he noted that at the time of his confirmation hearings, there was very little focus on the integration of cross-border securities exchanges, the impact of retailization of international investors or the challenges of international cyber crime. Global consolidation is now high on the list of importance in the world's capital markets. The pending combination of cross-border exchanges is a beginning, rather than a conclusion, according to the chairman. He believes the world's capital markets will become even more integrated in the next few years and the structure of exchanges and trading platforms will be completely rebuilt.

He said that national regulation will become even more important in the globalized marketplace with risks that can threaten not only investors, but the entire economy. Globalization brings increasing opportunities for fraud, he said. Regulators must constantly rethink their approach to cross-border financial services, according to the chairman. They must challenge long-held assumptions about how best to achieve national regulatory goals, in his view.

Criminals are becoming increasingly sophisticated in the use of technology to find the weak spots in regulatory defenses, Mr. Cox said. Enforcement has become more challenging as fraud may cross the borders of many nations. He is convinced that the way to meet this challenge is through technology. To successfully combat cyber crime, Mr. Cox said regulators must integrate their efforts with allies that share the same concerns.

Despite its importance, Mr. Cox said that transparency has been hard to achieve across borders due to differences in corporate governance, auditor oversight requirements and regulatory approaches. He believes that technology provides a means of dealing with these differences. Interactive data is one area in which international regulators may collaborate. Mr. Cox said the SEC is working with its counterparts in other countries who are implementing interactive data technology in securities, banking, tax reporting and financial sectors. Regardless of whether all nations agree on every accounting convention or financial reporting rule, Mr. Cox said interactive data provides a means of reconciling the differences.

There is no one true path to securities regulation, he said. Any approach that adequately protects investors deserves respect. The United States must ensure that its regulatory regime is robust enough to withstand new technologies and the challenges of high volume cross-border trading, he said. Regulations here must be cost-justified and the SEC must cooperate with its fellow securities regulators abroad to achieve mutually agreed-upon regulatory objectives. The costs and benefits of regulations must continually be reassessed as they are applied, he added. The future of the global economy depends on regulators' ability to raise the standards for the protection of trading and investment across all of the world's capital markets, while also making the markets more efficient, he said.