SEC poised to propose bonus and ratings curbs


By Sarah N. Lynch

WASHINGTON (Reuters) - Securities regulators were poised on Wednesday to propose a clampdown on bonus pay for Wall Street executives and to wean money market mutual funds off their reliance on credit ratings.

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In a packed agenda, the Securities and Exchange Commission was also expected to propose new governance rules for clearinghouses and to reopen the public comment period on a contentious proposal that aims to limit the control banks like Goldman Sachs and JPMorgan Chase & Co wield in derivatives clearing and trading venues.

All four proposals are the latest in the SEC's effort to implement roughly 100 new rules required under last year's Dodd-Frank Wall Street reform law. The law aims to enhance regulatory oversight and curb risky behavior in response to the 2007-2009 financial crisis.

The SEC is expected to vote on whether or not to issue the proposals for public comment later on Wednesday morning.


The SEC's proposal on compensation is similar to one already floated by the Federal Deposit Insurance Corp. The SEC and banking regulators are all required to jointly adopt rules on performance-based compensation.

The proposal would require brokers, dealers and investment advisers with assets of over $1 billion to disclose their incentive-based compensation arrangements and it places restrictions on schemes that could encourage excessive risk-taking. Executives at larger firms of $50 billion in assets or more would also have at least half of their incentive-based compensation deferred for three years.


The SEC will begin to tackle the removal of credit-rating references in federal regulations affecting money market mutual funds.

Under current regulations, money market funds must follow a two-pronged approach to ensure their underlying securities investments are safe and liquid. The securities must be highly rated, and the fund's board of directors must ensure via an independent evaluation that the securities are high quality.

The proposal would remove the rating requirement, but leave the independent evaluation requirement. The fund's board would have to also determine whether a portfolio security is "first tier" or "second tier."

The proposal also tackles removing references to ratings in other rules and forms that govern investment companies.

The failure of the SEC to come up with a substitute for credit ratings for money market funds could be point of contention at the SEC meeting.

In prepared remarks, SEC Commissioner Luis Aguilar said he has "serious misgivings" about the rule. "The costs of implementing today's proposal seem to far outweigh the benefits," he said.


In the first signs of a possible setback for the SEC in its derivatives rule-writing agenda, the agency on Wednesday was poised to reopen the comment period on a controversial plan to place limits on the voting power that financial firms can wield in derivatives clearinghouses and trading facilities.

Wall Street firms say it is not the best way to tackle conflicts of interest and could harm start-up venues.

In contrast, the U.S. Department of Justice's Antitrust Division has urged the SEC to make the proposal even stricter, in order to combat the dominance of big banks.

The Commodity Futures Trading Commission abandoned a planned vote to adopt a similar final rule amid dissent among commissioners there.

The SEC is weighing reopening the comment period in part due to disagreements by commenters, but also so it can be considered in conjunction with another related proposal that is likely to be issued for comment on Wednesday.

That proposal would lays out standards for how clearinghouses should be governed, including a requirement that they have enough financial resources to withstand a default by one or two of its largest clearing member firms.

It also aims to prevent clearinghouses from shutting out smaller firms that wish to join the clearing venue by requiring them not to place minimum portfolio size or transaction volume in their membership standards.

(Reporting by Sarah N. Lynch; Editing by Tim Dobbyn)