(The news featured below is a selection from the news covered in the Federal Securities Law Reporter, which is distributed to subscribers of SEC Today.)

Cox Discusses SEC's Agenda with House Financial Services Committee

Chairman Christopher Cox on May 3 reviewed the SEC's agenda before the House Financial Services Committee, where he also announced a $1 billion reduction in securities transaction and registration fees effective October 1. The fees will be reduced 71.3% for issuers registering their securities and 50.2% for most securities transactions. The fees are adjusted annually under the Capital Markets Fee Relief Act.

Committee Chairman Michael Oxley commended Cox for a number of initiatives that are underway at the SEC, including the review of Sarbanes-Oxley Act section 404, the consideration of the recommendations by the Advisory Committee on Smaller Public Companies and the effort to reduce complexity in financial reporting. Oxley also mentioned ongoing efforts to provide competition among credit rating agencies and said he hopes that reform measures will soon become a reality.  

Ranking committee member Barney Frank (D-MA) advised that the minority committee members had drafted a letter outlining their plan to call witnesses for a hearing on executive compensation. Frank has sponsored legislation that goes beyond the SEC's executive compensation disclosure proposal by requiring a shareholder vote on compensation. There is a trend of growing inequality in this economy, according to Frank. The economy is doing well but many people are struggling to keep up with increasing costs. 

Oxley asked Cox to describe his view of the Sarbanes-Oxley Act now that he is on the other side of the legislation. Cox believes the legislation can work and that nothing about it is onerous. Public companies should have internal controls subject to outside auditing, he said. He believes there is a great deal of benefit to be derived from section 404 and pledged to squeeze the maximum benefits from the provision at the lowest possible cost. The SEC will ensure that section 404 and PCAOB Auditing Standard No. 2 work together. As for the Advisory Committee on Smaller Public Companies' recommendations, Cox said the SEC has only recently begun its review. However, the SEC is likely to consider whether to extend the current section 404 exemption in the next few months.

Frank asked Cox whether the separation of the CEO and chair positions at mutual funds continues to be the hot issue it was before the SEC adopted the challenged rules. Cox said the SEC plans to review the rules as the court has directed, and pledged a very thorough process this time around. He has also held discussions with the Office of Economic Analysis and the chief economist about how the Commission analyzes the costs and benefits of its rule proposals.

Rep. Richard Baker (R-LA) noted that the current system for nationally recognized statistical rating organizations ("NRSROs") has yielded a very noncompetitive market. Rep. Michael Fitzpatrick (R-PA) has introduced legislation that would impose a regulatory system on NRSROs. Cox said the SEC would be very respectful of the legislative process. The SEC also wants competition, transparency and investor protection in the credit rating industry, he said, and continues to consider its rule proposal. The rating agencies are working on implementing a voluntary process.

Rep. Paul Kanjorski (D-PA) asked if the SEC is moving full speed ahead on its proposed rules. He suggested that there would be no need for legislation if the SEC adopts its rules. Cox said that the SEC's conclusion was dependent on how ambitious Congress is in restructuring the industry's regulation. The staff is currently formulating a recommendation on whether to act on the 2005 proposal to define NRSROs or whether to propose an alternative. The staff is also providing technical assistance to the rating agencies in implementing a voluntary framework, he advised.

Kanjorski also asked Cox to address the delay in responding to exemptive applications submitted by exchange-traded funds. Cox agreed that the process takes too long. Some of the applications are routine and others are complex. Cox said the Investment Management staff is currently working on over 215 exemptive applications, approximately 85 of which have been pending for over a year. The staff is preparing recommendations for rulemaking to eliminate the need to apply for routine exemptive requests. 

Rep. Paul Gillmor (R-OH) has reintroduced legislation to require companies to disclose their charitable contributions. He asked Cox if he held the same views as when he cosponsored similar legislation in the 106th Congress. Cox advised that the SEC had conducted feasibility studies after the legislation was first introduced and found that the disclosure would be feasible. Public companies could track and disclose the information. However, Cox noted that charitable contributions make up a relatively small proportion of companies' expenditures, so the disclosure likely would not be material.

Gillmor also asked Cox for his views on the disclosure of corporate taxes so that investors could compare income reported to the IRS with income reported to the SEC. Cox acknowledged that the IRS has floated the idea and discussed it with him. He said he is uncertain that publicizing tax returns is the best solution. Gillmor asked about disclosing just the income figures, but not the full tax return. Cox said the SEC wants disclosure to illuminate, not make it harder to figure out what is going on. The IRS-reported income may not be helpful overall to an investor's understanding. Cox said he would continue to discuss the matter with the IRS and the President's Working Group, but is not pre-sold on the idea.