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A U.S. appeals court yesterday said that the Securities and Exchange Commission can proceed with its overhaul of the way essential stock market data is collected and disseminated, striking a blow to exchanges that earn revenue from the data and had opposed the plan, Reuters reported. The SEC in 2020 approved new rules governing public data feeds that it said would also improve transparency and address inefficiencies in the collection and dissemination of the data, following years of complaints by brokers that the exchanges that control the data are conflicted in their role. Nasdaq Inc., Intercontinental Exchange Inc.'s NYSE unit, and Cboe Global Markets, opposed the plan, which allows firms other than the exchanges to develop and sell data products based on data obtained from the exchanges. The exchange groups, which together run 12 of the 16 U.S. stock exchanges, argued the new rules were contrary to the goals and policies of the Securities Exchange Act. In denying the exchanges' petition against the SEC, a three-judge panel on the U.S. Circuit Court of Appeals for the District of Columbia said the SEC's rule "clearly represents a reasonable balancing of the objectives Congress directed the Commission." The exchanges were put in charge of the data feeds, which show current best prices and last trades for stocks, before they were for-profit companies and the rules were last updated in 2005. Since then, exchanges have created faster, more sophisticated proprietary data feeds that compete against the public feeds. Many larger brokers say they need to pay for those private data feeds, often more expensive than the public ones, in order to remain competitive, and that this has created a two-tiered market.

A divided federal appeals court panel in New Orleans has vacated stiff financial penalties imposed on a hedge fund manager by the Securities and Exchange Commission, ruling that he was unconstitutionally denied a jury trial by the agency, the Associated Press reported. This week’s 2-1 ruling by a panel of the 5th U.S. Circuit Court of Appeals said the case against George R. Jarkesy should have been heard in a federal court instead of before one of the SEC’s administrative law judges. It also said Congress unconstitutionally granted the SEC “unfettered authority” to decide whether the case should be tried in a court of law or handled within the executive branch agency. And it said laws shielding the commission’s administrative law judges from being fired by the president are unconstitutional. The ruling, which divided three Republican-appointed judges on the court, could have far-reaching implications on the use of administrative law judges and the power of regulatory agencies. According to the University of Pennsylvania’s Penn Program on Regulation, there are nearly 2,000 administrative law judges employed by 28 federal government agencies.

A divided federal appeals court panel on Wednesday threw a wrinkle into how the Securities and Exchange Commission prosecutes some enforcement actions by declaring that its administrative proceedings can violate a defendant’s constitutional rights, the New York Times reported. The U.S. Court of Appeals for the Fifth Circuit, in a 2-1 decision, ruled that the SEC violated a hedge fund manager’s Seventh Amendment right to a jury trial when it let an in-house judge decide a civil fraud case. Such administrative proceedings are common among regulatory agencies, which use them to decide some enforcement actions. The ruling from the Fifth Circuit — one of the nation’s most conservative federal appellate courts — is another legal challenge to the SEC’s growing reliance on administrative law judges, rather than the filing of civil complaints in federal court. But for the moment, the ruling’s impact is limited to federal courts in the court’s jurisdiction, which covers Texas, Louisiana and Mississippi. “The Seventh Amendment guarantees petitioners a jury trial because the S.E.C.’s enforcement action is akin to traditional actions at law to which the jury-trial right attaches,” Circuit Judge Jennifer Walker Elrod wrote in the majority opinion. Judge Elrod, who was appointed to the court by former President George W. Bush, said the SEC did not have the authority to bring such a case before an administrative court because it did not involve solely “public rights.” The majority opinion said the in-house judge’s ruling against George Jarkesy in a securities fraud case should be vacated and sent back to the regulator. The court said the S.E.C. must act in accordance with the appellate court’s ruling, presumably requiring the case to be refiled in federal court. In a dissenting opinion, Judge W. Eugene Davis wrote that the majority misinterpreted the Supreme Court’s definition of what constitutes “public rights.” Judge Davis said Congress permits agencies to litigate cases before in-house judges if it involves “public rights,” such as protecting investors and “furthering public interests.”

For the last few months, Gary Gensler, Chair of the Securities and Exchange Commission (SEC), has been calling for more regulation and promised to step up enforcement actions to protect investors. Yesterday, he asked Congress to help him fund these efforts. Gensler also explained the areas where these funds would be assigned — crypto, unsurprisingly, is one of them, PYMNTS.com reported. In two different events on Tuesday, Gary Gensler explained first the need for the SEC to continue monitoring markets and enforcing securities laws, and second the additional funds necessary to cover these efforts. At the 2022 NASSA Spring Meeting, the SEC’s Chair warned investors about certain digital engagement practices that could create conflicts of interest and biases. New technologies like predictive analytics and machine learning have brought new tools like robo-advisors, brokerage apps and wealth management apps that offer useful services to clients, but they also raise a number of questions, according to Mr. Gensler. For instance, when they use certain digital engagement practices to entice investors to use their services or add new products, Gensler asked if they acting in the client’s best interest. The SEC needs to make sure that companies comply with the laws, and they don’t use new technologies to improperly nudge investors to do things they don’t really want to do. Behavioral nudging — when an app is designed to influence consumers’ behavior — is an area where the agency may be digging. The agency already adopted two rules in 2019, Regulation Best Interest for broker-dealers and an interpretation of the fiduciary standard for investment advisers. Yet, Mr. Gensler announced that he has asked the agency’s Divisions of Investment Management, Trading and Markets, Examinations, and Enforcement to ensure that investment professionals live up to these obligations. This includes ensuring that brokers and advisers will need to prevent their own interests from inappropriately influencing their recommendations and advice. Another area of concern for Mr. Gensler is the concentration in the market of data analytics, in particular in the back end of brokerage apps. This could raise issues of financial stability, Mr. Gensler argued, and that’s why he also asked his staff to examine how to improve efficiency and competition in the markets.

On the back of a meltdown in crypto markets last week, Securities and Exchange Commission Chairman Gary Gensler sent a stern warning to the investing public on crypto, calling it a “highly speculative asset class” and reiterating its lack of investor protections, YahooFinance.com reported. During an appearance at a FINRA conference in Washington, D.C., yesterday, Gensler opined that the investing public isn’t getting full and fair disclosures and that cryptocurrencies should be regulated as securities. “The investment public is not getting disclosures…. When you make other asset purchases, we have this basic bargain, you the investing public can make your choices about what risks you take,” Gensler said. “There's supposed to be full and fair disclosure, and people aren't supposed to lie to you. Right now, many of these entrepreneurs come up with an idea … and they want to raise money from you. That puts it inside of the securities laws.” Gensler warned that investors should not think they own their crypto tokens, noting that using a digital wallet on a platform constitutes a transfer of ownership to the platform. “If the platform goes down, guess what? You just have a counter-party relationship with the platform," Gensler said. "Get in line at bankruptcy court."

The U.S. Supreme Court yesterday agreed to hear the Securities and Exchange Commission's bid to block a challenge to the constitutionality of its in-house tribunal brought by a Texas accountant who the agency punished after faulting her audits of publicly traded companies, Reuters reported. The justices took up the SEC's appeal of a lower court ruling that revived certified public accountant Michelle Cochran's challenge. The lower court rejected the agency's argument that under a U.S. law called the Securities Exchange Act Cochran could not contest the constitutionality of the tribunal's judges in federal court before the end of the SEC's administrative enforcement proceeding against her. Cochran's case is similar to one involving Taser manufacturer Axon Enterprise Inc, which is contesting an antitrust action against it by another federal agency, the Federal Trade Commission. The Supreme Court in January agreed to hear Axon's appeal of a lower court ruling that threw out its challenge to the constitutionality of the FTC's structure. An SEC judge in 2017 had found that Cochran failed to comply with auditing standards in violation of the Securities Exchange Act, fining her $22,500 and banning her from practicing as an accountant before the commission for five years. The SEC cited deficiencies in her audits of publicly traded companies. Cochran sued the SEC in 2019 to stop the enforcement action against her, arguing that its in-house judges, who enforce investor protection laws and regulations, have job protections that unlawfully insulate them from a president's power to control executive branch officers under the U.S. Constitution's Article II. After the Supreme Court in 2018 ruled that the way the SEC's judges were appointed violated the Constitution, the agency set aside the decision against Cochran and assigned her case to a new, properly appointed judge.

The Securities and Exchange Commission said Monday it has extended the public-comment period on three major rule proposals after receiving widespread complaints from interest groups that it wasn’t allowing enough time for analysis, the Wall Street Journal reported. The SEC said it will accept comments until June 17 on a proposal to increase disclosure requirements around climate change and related risks. It is also reopening the comment periods for proposals affecting private funds and trading platforms for U.S. Treasury securities. Those comments will be due 30 days after an SEC notice is published in the Federal Register. The content of the proposals remains unchanged. “Commenters with diverse views have noted that they would benefit from additional time to review these three proposals,” SEC Chairman Gary Gensler said in a statement. Before finalizing any major regulatory changes, agencies like the SEC are required by law to issue a proposal and seek feedback from the public, among other steps. In recent years, the SEC has typically accepted comments for up to 60 days after a proposal was published in the official journal of daily government actions, known as the Federal Register. But Mr. Gensler, whom President Biden tapped to lead the agency last year, has generally allowed comment periods of just 30 days — the minimum allowed under federal law.

A former senior trader at Nomura Holdings Inc. lied to customers about bond prices to boost the bank’s profits and his own bonus, the SEC said in court, Bloomberg News reported. James Im, a Nomura managing director who headed trading in commercial mortgage-backed securities from 2009 to 2014, went on trial Wednesday in Manhattan. A 2017 Securities and Exchange Commission suit accused Im of misrepresenting prices to clients who sought to buy and sell CMBS on the secondary market. “This case is about lies,” SEC lawyer Ladan Stewart said during opening statements. “Lies told by the defendant, James Im, a Wall Street trader. Lies he told repeatedly for many years. Lies he told to customers who expected him to be truthful.” The regulator claims that Im and another trader, Kee Chan, who ran the CMBS desk with him from August 2009 to June 2012, pretended they were still negotiating with a third-party seller at higher prices when Nomura had already bought the bonds involved at a lower price. According to the SEC, their actions generated more than $750,000 in extra profits for the bank, which resulted in “substantial” bonuses, the SEC said.

U.S. Securities and Exchange Commission Chair Gary Gensler wants to slash the amount of time that traders have to report many bond transactions as part of a bid to increase visibility into fixed-income markets, Bloomberg News reported. Gensler on Tuesday said that more transparency was needed across global bond markets, and that disclosures had generally failed to keep up with technological changes. In remarks to be delivered at City Week in London, the SEC chief said data should be sent faster to the Financial Industry Regulatory Authority’s Trace reporting system and cover more types of securities. “Currently, a trade has to be reported as soon as practicable but no later than within 15 minutes of the time of execution,” he said, also referring to how transactions involving municipal securities are reported to regulators. “Why couldn’t the outer bound be shortened to no later than, for example, 1 minute?” The amount of time that traders have to report fixed-income transactions has been a hot-button issue for regulators since before Gensler took over the last April. During the Trump era, a controversial plan to test whether delaying disclosure of the biggest corporate bond trades would boost market liquidity was eventually shelved after strong industry opposition. Gensler said that there could also be value in broadening Trace reporting to include sovereign debt transactions. The market impacts of Russia’s invasion of Ukraine “have shown the value that regulatory reporting and public dissemination of foreign sovereign bonds would offer.”