President Trump Nominates Jay Clayton as Chairman of the SEC

President Donald Trump recently announced his nomination of Jay Clayton as the next chair of the U.S. Securities and Exchange Commission (“SEC”). Clayton, a partner at the law firm Sullivan & Cromwell LLP, will be replacing Mary Jo White who served as the chair since 2013. White leaves behind a legacy focused on investor protection and corporate accountability through the implementation of a vast array of new rules and regulations, many of which were mandated by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”).

Should he be confirmed, one of Clayton’s first undertakings is likely to be revising or repealing certain rules adopted by the SEC under White, to reduce regulatory compliance requirements for large financial institutions. During the banking crisis in 2008, these institutions received extensive government bailouts, and new fiscal policies were implemented to prevent a potential collapse of the world’s financial system. This precipitated what many economists have dubbed the worst financial crisis since the Great Depression. In 2010, President Obama signed into effect the Dodd-Frank Act, which aimed to “promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘too big to fail,’ to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.” One of the major federal agencies affected by the Dodd-Frank Act was the SEC, which was afforded more regulation-setting capabilities and to provide more transparency to the public.

At its core, the SEC’s mission is to protect the interests of investors, ensure fair and orderly markets, and facilitate capital formation. During White’s tenure as chair, the SEC brought nearly 3,000 enforcement actions for violations of federal securities law and charged more than $13 billion in monetary sanctions spanning over 3,300 companies and 2,700 corporate officers¹. White attributes this success to enhanced data analytics and technology, in addition to a whistleblower program that has awarded more than $100 million to individuals who provided key original information leading to successful enforcement actions². Despite this, some would argue that capital formation has been hindered significantly as a result of voluminous rules and regulations.

Now in a position to change the SEC’s direction, President Trump has indicated the need to deregulate financial markets, as he believes many of the current rules and regulations have “stifled investment in American businesses.” He has vowed to “restore oversight of the financial industry in a way that does not harm American workers.” President Trump looks to loosen certain regulations in an attempt to foster job creation. White and other Democrats on Capitol Hill have strongly voiced their apprehensions about plans the Trump Administration vows to implement. “There is a lot of discussion about how the new administration may weaken or even reverse many of the reforms that the SEC and our fellow financial regulators have implemented since the financial crisis,” said White in her last speech as SEC chair. Regardless of who was ultimately named White’s successor, taking over as the SEC chair is certainly a tough task given the complexity and scrutiny of the financial markets today. For better or worse, that will soon be Jay Clayton’s responsibility.

Clayton’s history has included supporting financial institutions and hedge funds; he represented Goldman Sachs, when they received a $5 billion capital infusion from Warren Buffet in 2008, and also represented Barclays Capital when they acquired the assets of Lehman Brothers. A deeper dive into Clayton’s past will reveal he has never worked in a regulatory or law enforcement role, but instead has developed an expertise in investment banking, securities law, and related regulations. Clayton has been intimately involved in mergers, acquisitions and initial public offerings such as Alibaba’s initial public offering, British Airways merger with Iberia, and the sale of the Atlanta Hawks NBA team.

Only time will tell how well Clayton will perform his balancing act to ensure financial institutions can promote job growth and thrive, all while maintaining compliance with rules and regulations that are in the public’s best interest. With a Republican soon to be at the helm of the SEC and two vacant commissioner positions still to be appointed by President Trump, there are undoubtedly going to be big changes in the near future. Whether those changes will be effective in carrying out the SEC’s mission to protect the interests of its investors, ensure fair and orderly markets, and facilitate capital formation will be the driving force behind the success or failure of Clayton’s term as chairman of the SEC.

Sources

1. SEC Press Release, “SEC Chair Mary Jo White Announces Departure Plans,” November 14, 2016
2. SEC Press Release, “SEC Accomplishments April 2013 – October 2016,” November 11, 2016