Wide-ranging reg reform bill proposed by Senator Dodd

By far the most wide-ranging financial services reg reform bill to date was unveiled today by Senate Banrking Committee Chairman Chris Dodd (D, CT) as a discussion draft. In announcing the bill, Chairman Dodd made clear that he is seeking the input of his colleagues on both sides of the aisle.

Of primary concern to ShareOwners.org are the provisions dealing with corporate accountabiltiy (Subtitle E of Title IX), strengthening corporate governance (Subtitle G of Title IX) and other securities-related provisions that beef up SEC funding and strengthen investor remedies. In this and other respects, the discussion draft released today by Chairman Dodd is broadly reflective of the ShareOwners.org agenda.

The discussion draft goes beyond the proxy access and executive compensation pieces included in measures approved by the House Financial Services Committee to also include election of directors by majority vote in uncontested elections, disclosure regarding chairman and CEO structures and shareholder vote on staggered terms of directors. The discussion draft includes increased funding for the SEC through self-funding provisions and restores private aiding and abetting liablity. And, the discussion draft ensures that brokers who offer investment advice meet the same standards as other investment advisers by removing the broker-dealer exclusion from the Investment Advisers Act. In order to ensure that brokers can continue to engage in principal trading – prohibited under the Advisers Act but a mainstay of the broker-dealer business model – the draft bill would provide the SEC with broad authority to exempt brokers from these restrictions so long as the broker adequately protects investors against principal trades that are not in their best interests.

The discussion draft also strengthens provisions regarding mandatory pre-dispute binding arbitration clauses in broker and adviser contracts. Whereas the Administration Plan and the House bill authorize the SEC to adopt rules prohibiting or restricting such contracts, the Dodd discussion draft requires the SEC to initiate a rulemaking.

We still are digging through the bill and invite readers to share insights and thoughts on the draft bill. A summary of the 1,000+ discussion draft may be found at
http://banking.senate.gohttp://banking.senate.gov/public/_files/AYO....