February 4, 2010

The SEC: 12% Budget Hike Coming for 2011?

It was good to see SEC Chair Schapiro’s statement about President Obama’s request for the SEC’s budget, with a 12% increase for 2011 so that the agency’s total would be nearly $1.3 billion. As one former Staffer emailed me: “I remember when they struggled to pass $500 million!” They will need the resources to implement the coming reforms, as well as continue they tasks they have already been performing.

Here’s the SEC’s justification report for the budget request. On page 47 (page 49 of the PDF), there is a page devoted to Corp Fin, where the Division seeks 30 additional positions (translating into nine full-time equivalents). In comparison, Enforcement seeks 90 more positions; IM seeks 20 and Market Reg seeks 40. RiskFin seeks 30 positions – it already has 72. I’m surprised it has grown so fast already…

This action by the Administration is interesting because Obama’s State of the Union last week announced a freeze on government spending for the next three years. But the “freeze” is not absolute – rather, some agencies will see their budgets go up and others will go down, producing an overall freeze effect. So it appears that the SEC may be a “winner” here, as it should be in my opinion.

This excerpt from the SEC’s justification report is noteworthy: “Between fiscal years (FY) 2005 and 2007, the SEC experienced three years of flat or declining budgets, losing 10 percent of its employees and severely hampering key areas such as the agency’s enforcement and examination programs. Even with the funding increases provided by Congress in the last two years, under the SEC’s current funding level, the agency’s workforce still falls about one percent–or 35 full-time-equivalents (FTE)–short of the FY 2005 level. And yet while the workforce at the SEC has shrunk, the job that the SEC has been asked to do has grown even larger. Since 2005, the number of investment advisers registered with and overseen by the SEC has grown by 32 percent, and the number of broker-dealer branch offices has grown by 67 percent.

The SEC oversees a total of more than 35,000 registrants, including over 10,000 public companies, 7,800 mutual funds, about 11,500 investment advisers, 5,400 broker-dealers, 600 transfer agents, 12 securities exchanges, 10 nationally recognized statistical rating organizations (NRSROs), and self-regulatory organizations (SROs) such as the Financial Industry Regulatory Authority, Municipal Securities Rulemaking Board, and Public Company Accounting Oversight Board. While other financial regulators have close to parity between the number of staff and the number of entities they regulate, in recent years SEC staffing and funding simply have not kept pace with industry growth.”

The SEC Approves FASB’s “Support Fee”: What Is It?

Speaking of budgets, a few days ago, the SEC approved FASB’s “accounting support fee” for 2010. The support fee is sort of the FASB’s budget – and the SEC’s approval process is an annual exercise that the SEC now conducts in accordance with Section 109 of Sarbanes-Oxley. The FASB is limited to collecting fees from issuers not to exceed its “recoverable expenses.” In reality, the PCAOB collects the FASB’s support fees when it collects its own fees and then hands over that money to FASB.

The PCAOB’s redesigned website is not bad. My fixes to the home page would include losing the fake Scotus graphic at the top; minimize the huge and long title and move the intro sentence that takes up a lot of valuable real estate to the “About Us” page. It was odd that the PCAOB announced the redesigned site a few days before it went live – less confusing to announce it when it actually happens…

SEC Approves Nasdaq’s Amended Delisting Procedures

Last week, the SEC approved a rule change to Nasdaq’s delisting procedures that modify the length of certain of the automatic and Staff-authorized “compliance periods” as well as the length of time available for a company to submit a plan to regain compliance. To help you understand these changes, in our “Delisting” Practice Area, we have posted a chart – courtesy of Suzanne Rothwell of Skadden Arps, explaining delisting procedure changes.

– Broc Romanek