Securities Industry Commentator by Bill Singer Esq

Check out these these super-realistic Samsung 'artificial humans' at CES 2020 (CNBC.com)

[In]Securities Guest Blog: Born to be Wild by Aegis Frumento Esq (BrokeAndBroker.com Blog)

Bank Branch Manager Sentenced To 33 Months For Scheme To Steal Funds From Elderly Account Holders (DOJ Release)  

Arbitrators deny ex-advisor chance to defend himself in Raymond James case (On Wall Street by Andrew Welsch)

SEC Charges Individual with Orchestrating Offering Fraud (SEC Release)

SEC Charges Private Investment Firm with Fraudulently Misleading Investors (SEC Release)

SEC Proposes Improvements to Governance of Market Data Plans (SEC Release)

Statement on Proposed Order to Modernize the Governance Structure of National Market System Plans for Equity Market Data by SEC Chairman Jay Clayton (SEC Release)

Statement at the Open Meeting Considering a Proposed Commission Order Addressing Equity Market Data Plans by SEC Commissioner Elad L. Roisman (SEC Release)

Statement on Reforming Stock Exchange Governance by SEC Commissioner Robert J. Jackson (SEC Release)

Statement on Proposed Order for Creation of a New Consolidated Market Data Plan for Equity Market Data by SEC Commissioner Allison Lee (SEC Release)

[B]etween July 2015 and May 2019, Blakstad induced investors to purchase the securities of companies he controlled, including both Energy Sources International Corporation and Xact Holdings Corporation, by making materially false and misleading statements and omissions about the use of investor proceeds and business operations. According to the SEC's complaint, instead of using investor funds as promised, Blakstad misappropriated at least $2.2 million of investor funds. Blakstad allegedly spent the investor funds on personal entertainment, the purchase of a stake in a night club, and a luxury automobile. In July 2019, the Commission charged Blakstad for his role in a separate insider trading scheme.

[I]n July 2014, Renison, a CT resident, was barred by the SEC from, among other things, associating with any investment adviser or broker dealer. Nevertheless, the complaint alleges that from at least July 2015 through June 2018, Renison violated this bar when he, along with Allcott, a MA-resident, formed ARO Equity and raised approximately $6 million from at least 15 investors. The SEC's complaint alleges that Renison and Allcott falsely touted ARO Equity's success to encourage potential investors to cash out of their retirement products and invest with them in ARO Equity. The complaint alleges that soon after the defendants launched the firm, ARO Equity's investments began to fail. Rather than inform their investors of the losses, Renison and Allcott continued to falsely promote ARO Equity's success and the security of investing with them. Among other false statements, Renison and Allcott allegedly told investors that ARO Equity had double-digit returns, that there was no downside to investing with the firm, and that the investors' money was as safe as being in a bank. In reality, ARO Equity had experienced significant losses and had to use new investor funds to pay interest to older investors.

SEC PROPOSES MARKET DATA MODERNIZATION

Today, we are considering a staff recommendation regarding the governance structure of the NMS plans for equity market data.  The Division of Trading and Markets recommends that, to begin the process of addressing (1) the inefficiency of having three NMS plans for equity market data that is used collectively and (2) the concerns raised about the Equity Data Plans' governance structure, the Commission publish for comment a Proposed Order that would direct the SROs to propose a single new NMS plan, with an enhanced governance structure, to administer the collection and dissemination of equity market data.  The Proposed Order calls this the "New Consolidated Data Plan."

Many market participants have said that the current governance of the NMS data plans has contributed to this outcome.  As one example, most of the voting power in these plans is now consolidated and held by "exchange groups" (multiple exchanges operating under one corporate umbrella).  The result is that it takes only one of these groups to block a change to a plan.  Conversely, certain votes require unanimity, which can be prevented by the vote of only one exchange, even where that exchange represents a modest slice of overall market volume.  Another example relates to conflicts of interest amongst those who govern the plans.  The exchanges are the plan participants and hold voting power over the plans, but at the same time many also sell their proprietary data feeds that compete with SIP data feeds in certain aspects.  I have also heard that the current governance structures of the plans may impede the ability for the advisory committees to meaningfully fulfill their role.  For example, it is said that key decisions are made in "executive" sessions, during which the advisory committee is excluded. 

As today's release explains, America's stock markets are riven by a fundamental conflict of interest: exchanges both operate public data feeds and profit from selling superior private ones. Because exchanges have no economic reason to produce robust public data on stock prices, investors have long demanded a vote on how the public feeds are run. Rather than give investors a real say over the data that drives our markets, today's release merely invites for-profit exchanges to draft their own rules on these questions. Because that approach has failed investors before, and there's no reason to expect it to succeed now, I respectfully dissent.

[W]hile the proposed order takes steps toward addressing the conflicts of interests inherent in having for-profit exchanges both overseeing the SIPs and selling their own competing proprietary data streams, it unfortunately falls short in safeguarding the public interest.

The key piece of today's proposal would potentially add non-SRO voting members to the governance structure, essentially giving these new members one-third of the vote. But simply adding non-SRO voting members will not protect the public interest in ensuring robust and useful SIPs. Indeed, these members would have neither the voting power, nor necessarily the market incentives, to affirmatively usher in the larger reforms required for the SIPs to provide adequate market data to investors on a fair and reasonable basis. What's more, we risk preserving for years to come, an insufficient governance structure on the grounds that it has been somewhat improved.

• Securities Industry Commentator
• Bill Singer