The week in GRC: Don’t delay CEO pay rule, says Calpers, and SEC nominee testifies

– The Wall Street Journal reported that median pay for the CEOs of 104 of the biggest US companies rose 6.8 percent for fiscal 2016 to $11.5 million, on track to set a post-recession record. Twice as many companies increased their CEO’s pay as reduced it, though a few high-profile bosses took substantial pay cuts. The higher pay was granted as the stock market saw strong gains and corporate profits rebound over the course of 2016. ‘If ever there was going to be a good year for CEO pay, it was going to be 2016,’ said David Yermack, a finance professor at New York University’s Stern School of Business who studies executive compensation.


– UK Prime Minister Theresa May will officially notify the EU next Wednesday that the country is leaving, the BBC reported. Downing Street said she would write a letter to the European Council, adding that it hoped negotiations on the terms of exit and future relations could then begin as quickly as possible. If all goes according to the two-year negotiations allowed for in the official timetable, Brexit should happen in March 2019.


– The New York Times said that, although advances in artificial intelligence (AI) technology tailored for legal work have led some lawyers to worry that their profession may be hit, recent research and people working on the software to automate legal work suggest the adoption of AI in law firms will be a slow, task-by-task process.


– Bloomberg reported that, according to people familiar with the matter, US bank regulators have tentatively agreed to ease an appraisal requirement that could help commercial real estate borrowers. Regulators have decided the threshold for requiring appraisals on commercial property should be increased to $400,000 from $250,000, according to two people. The threshold for residential real estate would remain at $250,000, they said. Spokespeople for the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation declined to comment.


– Former City minister Paul Myners said the UK’s lax regulations on takeovers makes its companies easy targets for foreign and domestic bidders, and called on May to bring in a ‘public purpose test’ to protect them, according to Bloomberg. Regulations governing takeovers need to take a ‘broader perspective’ than allowing bids to proceed if they have enough financial clout, he said.


– The Financial Industry Regulatory Authority’s (Finra) BrokerCheck search tool produces reports showing arbitration decisions that went against brokerage firms – but not legal settlements it negotiated with clients – although it shows both for individual brokers, according to the WSJ. The different treatment means it is more difficult for investors to compile all information about a brokerage before making a decision about their money, some securities experts say. 

Finra said in a statement that BrokerCheck provides ‘an unparalleled amount of information about firms’, including ownership, bankruptcy filings, criminal convictions, civil judicial proceedings and legal settlements with regulators. The data that appears on a brokerage’s BrokerCheck file is taken from an SEC form that firms fill out, and any change to that form ‘is not within the control of Finra,’ a Finra spokesperson said.


– The Financial Times reported that Frankfurt is emerging as the early frontrunner in the race between rival financial centers to win jobs from London ahead of the UK’s departure from the EU. Bankers and officials across Europe say the City of London will lose business to multiple locations with different specializations. But Frankfurt seems to have an edge over competitors such as Dublin, Paris, Amsterdam, Madrid and Milan, according to interviews with more than 30 senior financiers and officials.


– Bloomberg said that, according to a Linklaters report, Chinese buyers are seeing a large number of cross-border deals blocked at home and abroad as a sharp increase in volume makes regulators on both sides of transactions more cautious. Of deals worth $220 billion announced by Chinese acquirers, between $40 billion and $75 billion ‒ or almost a third of the number of potential transactions ‒ were canceled or withdrawn last year, according to the report. Many were nixed over concerns relating to national security or national interest.


– The NYSE said in an email to clients that Monday’s glitch on NYSE Arca – the largest listing marketplace for US exchange-traded funds – resulted in 341 securities not completing their closing auction successfully, according to the WSJ. The NYSE apologized and invited traders who lost money from the mishap to submit claims for compensation.


– Reuters reported that the US Supreme Court placed new restrictions limiting a president’s authority to staff certain top government posts in a case involving an appointment to the National Labor Relations Board (NLRB). The court decided 6-2 to uphold a lower court’s ruling that then-president Barack Obama exceeded his legal authority with his temporary appointment of an NLRB general counsel in 2011. The ruling will give US President Donald Trump and future presidents less flexibility in filling jobs that require Senate confirmation.


– The WSJ reported that, according to people familiar with the matter, US Department of Justice (DoJ) investigators crashed a meeting of the world’s biggest container-shipping operators and issued subpoenas to executives at several companies as part of a probe into possible price-fixing. Maersk Line confirmed it was subpoenaed, and Germany’s Hapag-Lloyd also said it was handed a subpoena by DoJ investigators. A Maersk Line spokesperson said the subpoena didn’t ‘set out any specific allegations’. Maersk and Hapag-Lloyd said they would co-operate fully with the US authorities. A DoJ spokesperson declined to comment.


– A coalition of institutional investors including Calpers has called on the SEC not to delay the rule for companies to disclose the pay gap between their CEOs and other employees, according to Bloomberg. The disclosure would help shareholders assess companies in their portfolios, the investors wrote in a letter to acting SEC chair Michael Piwowar. ‘The SEC’s pay ratio disclosure rule is thoughtful, balanced and carefully crafted,’ the letter said. ‘Delaying the implementation of this rule will do a huge disservice to investors.’


– Wells Fargo CEO Timothy Sloan said at a company town hall meeting that the bank is aiming to survey all of its roughly 269,000 employees about its culture, working with an academic who specializes in this area, the WSJ reported. The survey of between 20 and 30 minutes will roll out in May. ‘Our goal is to uncover our culture’s positive attributes and its potential weaknesses, so our leaders can understand how best to foster an ethical, inclusive and customer-focused culture,’ Sloan said.


– The SEC adopted an amendment to shorten by one business day the standard settlement cycle for most broker-dealer securities transactions. At present, the standard settlement cycle for these transactions is three business days, known as T+3. The amended rule shortens the settlement cycle to two business days, T+2.

‘As technology improves, new products emerge and trading volumes grow, it is increasingly obvious that the outdated T+3 settlement cycle is no longer serving the best interests of the American people,’ said Piwowar. Broker-dealers will be required to comply with the amended rule beginning on September 5, 2017.



– The Supreme Court ruled that basic elements in cheerleader uniform designs merit copyright protection, handing a victory to the top US maker of the garments in a decision with serious implications for the fashion industry, according to Reuters. The justices said the ‘pictorial, graphic or sculptural features’ must be ‘separable’ from the design of a utilitarian object. The features would also have to merit copyright protection as a stand-alone work.


– Bloomberg reported that three units of Barclays have been penalized by the Australian Securities and Investments Commission (Asic), which accused them of failing to tell clients that they didn’t hold local financial services licenses and instead were regulated overseas. Under the Australian regime, foreign firms that offer services to the wholesale market can obtain exemptions from full domestic licensing requirements, provided they make prominent disclosures that they are regulated overseas.

Asic said the units failed to disclose the information to clients or inform Asic of the breaches in a timely manner. The units have agreed to an enforceable undertaking with the regulator and have agreed to engage an independent expert to review their compliance frameworks. Collectively, they will also make a contribution of A$500,000 ($383,000) to the local Ethics Centre. ‘We are pleased this issue has been resolved in such a positive way for Australia and Barclays,’ a Barclays spokesperson said.


– EU antitrust regulators outlined a proposal aimed at giving national watchdogs of member states more power to crack down on anti-competitive practices and to ward off political interference, Reuters said. The move by the European Commission came after a study it commissioned found shortcomings in the way competition agencies were equipped and structured, preventing them from doing their work effectively.


– Bloomberg reported that executive compensation is a particular focus in the run-up to this year’s annual general meeting season for UK companies. With a number of executive pay policies coming up for renewal in the coming weeks, some companies are responding to pressure by cutting bosses’ remuneration. Others are knocking on the door of asset-manager shareholders, asking them to look at pay proposals before they’re put to a vote – even when they’ve had no problems in the past.


– Jay Clayton, Trump’s choice to chair the SEC, told lawmakers on Thursday that scaling back regulations could prompt more companies to go public, while also expressing skepticism that large corporate penalties deter fraud, according to the WSJ. Clayton didn’t detail his plans for paring back rules that govern public stock offerings and deflected other questions about his specific views. He praised the 2012 Jumpstart Our Business Startups Act, which made it easier for companies with less than $1 billion in annual revenue to go public.


– The SEC announced the opening of registration for its compliance outreach program seminars for investment companies and investment advisers. The seminars will be offered in four cities and are intended to help chief compliance officers and other senior personnel enhance compliance programs at investment companies and investment advisory firms.