E-delivery wound up on the cutting room floor when the SEC finalized the Modernization rules. Is it gone forever or will its proponents will it back to a vote?
When the SEC issued its final rules on SEC Modernization in October, notably absent was the e-delivery rule, which would have allowed funds to meet their obligation to transmit shareholder reports by making the information available on the SEC’s website. While the asset management industry wasn’t looking for more regulation, it would perhaps have welcomed a finalized version of this rule.
There were three main benefits of e-delivery:
- It was an eco-friendly option that would have eliminated the mass production of paper reports. The ICI (Investment Company Institute) estimated e-delivery could save over 11,000 trees annually.
- Eliminating mass printing would have meant a significant cost reduction for funds and investors. The SEC estimated in its proposal that approximately $105 million of annual paperwork expenses associated with printing and mailing of shareholder reports could be eliminated through e-delivery.
- There was hope investors may be more inclined to read and make greater use of the information if it was available online.
Those in opposition to e-delivery cited concerns for elderly and lower income shareholders who either did not have or would not use the internet to read shareholder reports. Unfortunately for asset managers and shareholders, these concerns, in conjunction with intense lobbying from the paper industry and mail carriers, caused the SEC to say “no” to its inclusion in SEC Modernization.
There were hopes that e-delivery would be revisited in December: During an October 2016 meeting, SEC Chair Mary Jo White indicated the SEC would have another look at the proposal by year-end. The US election, however, threw a wrench in things as Chair White announced her intention to resign at the end of President Obama’s term. As a result, all SEC rulemaking has been put on hold until the new administration takes charge.
When Chair White vacates her seat that will leave only Commissioners Michael Piwowar and Kara Stein for the short term, which means the SEC will be deadlocked on e-delivery. As outspoken as Piwowar is on behalf of e-delivery, Stein is as strongly against it. In fact, Commissioner Piwowar, who will likely sit as interim chair after Chair White’s departure, has already indicated that the SEC will focus on non-controversial rule making until a new SEC Chair is appointed.
The new administration recently named Jay Clayton as its nomination for SEC Chair. Clayton is a Wall Street defense attorney and little is known at this point about his priorities as SEC Chair. While we don’t have a crystal ball, it’s possible e-delivery could be revived. Even though President Elect Trump has vowed for no new regulation, the cost savings associated with e-delivery may appeal to his pro-business agenda. As we continue to wait for Clayton’s SEC agenda, asset managers have plenty to keep themselves busy as they prepare for upcoming SEC Reporting Modernization and Liquidity Rules.