PBS Nightly Business Report Interview Transcript

PBS Transcript

Nightly Business Report Interview

PBS Nightly Business Report Interview TranscriptBelow please find a transcript that I was sent earlier today via email:

The PBS program Nightly Business Report is pleased to release a transcript of its exclusive interview with SEC Chairman Mary Schapiro. This is Schapiro’s first television interview since taking the reins of the SEC.

STEPHANIE DHUE, CORRESPONDENT, NIGHTLY BUSINESS REPORT: You told credit rating agencies the status quo wasn’t good enough. When will we see changes in the way they do business?

MARY SCHAPIRO, CHARIMAN, SECURITIES AND EXCHANGE COMMISSION: As you know we held a roundtable yesterday on credit rating agencies and we brought in about 30 experts from academia, from the investment community from labor unions and from the credit rating agencies themselves to talk about the short comings in the current model of credit rating agencies. And we had an enormous amount of information from all of these participants and a lot of issues for us to parse and to really think about, so I can't tell you a specific time when I think we'll be done on that issue, but we will be very much informed by what we learned yesterday from all these experts and proceed hopefully sometime this summer to propose some additional enhancements.

STEPHANIE DHUE: So you think new regulations will be needed, the regulations that have been put in place don't just need enough time to work?

MARY SCHAPIRO: Some of the regulations are new they haven't really had enough time to work. But I think there are some additional things we need to focus on to align the interests of the credit rating agencies with the users of the ratings, investors, as opposed to the issuers of the security. And that's really important to us because investors relied on credit ratings, they were badly misled in many cases, and if we want to bring integrity back to the ratings process, we've got to find a way for the ratings agencies to serve the users of the ratings and that's investors.

STEPHANIE DHUE: Would you be prepared to take away a company's "nationally recognized" status as a credit rating agency to punish them if they don't get their act together?

MARY SCHAPIRO: I think if somebody has the nationally recognized rating from the SEC and they violate the law, that's absolutely something we would consider doing.

STEPHANIE DHUE: We're just about in the throws of proxy season and shareholder activists are pushing hard to reign in executive pay, will you help them to get rid of non responsive board members by giving them access to the proxy?

MARY SCHAPIRO: We are very committed to giving long term, serious investors access to the proxy and we should propose rules on that probably in a month or so for the commission to consider and to put out for comment. But it's real important, especially given the crisis that we are going through right now that boards be ever more accountable to owners of the company, the shareholders. So we are very committed to moving ahead on responsible proxy access as soon as possible.

STEPHANIE DHUE: Responsible proxy access - how far do you go?

MARY SCHAPIRO: I think we have to grant access to the proxy to longer term shareholders of some size in terms of their share holdings, there has been lots of debate about should you have to own 5% or 1% of a company's stock, or should we have a tiered approach, where depending on the size of the company the threshold for stock ownership might be different. So we are looking at all of those different options and we will propose something in about a month which we think will provide very good and responsible access.

STEPHANIE DHUE: Just before the financial meltdown banks that owned money market funds were quietly shoring up funds they were concerned would break the buck, or would have broken the buck if they didn't pour money in, largely unbeknownst to investors. What changes are you going to make to money market mutual funds and the way they are regulated?

MARY SCHAPIRO: Money market funds are an enormously important part of the financial system, there are 4 trillion dollars in money market funds and investors rely on them enormously. So from my perspective, it's really critical that the SEC take all the steps it can to bolster confidence in money market funds. So we are going to look at proposing rules very shortly that will enhance the credit quality of money market holdings, shorten maturities, and therefore increase liquidity and hopefully make them more resilient in an economic crisis then we learned they were in this past fall.

STEPHANIE DHUE: Do you think investors should be concerned about money market funds, there is the insurance now, but are there still dark areas there? Will we see more turmoil?

MARY SCHAPIRO: It's hard to predict whether we'll see more turmoil there, but I think investors can have confidence in the basic integrity of money market funds. The insurance program is in place, as you mentioned, and we will take the steps necessary to again restore their resilience in times of economic crisis.

STEPHANIE DHUE: The SEC has been involved in investor education on Ponzi schemes, particularly in light of the Madoff scandal, are you getting more people calling in with tips about Ponzi schemes and what are you doing with that information?

MARY SCHAPIRO: We receive close to a million tips per year at the agency and we need to handle them better and more effectively then we have historically, and we are reviewing from A to Z our process so we can be more effective with them. But I will tell you the number of Ponzi schemes that we are detecting early on and stopping, shutting down immediately has grown dramatically in the time that I've been here and I think to quote Warren Buffett, “when the tide goes out we see who's been swimming naked” and that's what's happened with Ponzi schemes. They can't maintain the scheme in more difficult economic times and as a result they are being exposed earlier on.

STEPHANIE DHUE: You certainly do have your work cut out for you, you're also looking at Bank of America and bonuses that they paid to Merrill Lynch, if you find that they didn't disclose that information like they should, what's the punishment for that?

MARY SCHAPIRO: We're looking very carefully about the disclosure of the bonuses and I've said that to a member of Congress who inquired about it, and if it turns out to be inappropriate it will be referred to our enforcement division and then we have the full range of sanctions that we can imply in the conduct of an enforcement case.
STEPHANIE DHUE: But even though you've been making all these efforts, the SEC, given its handling of the financial crisis is under fire and some critics say, you know, it's time to scrap it and start over, maybe fold it into the CFTC or just do away with it, they haven't done their job. What do you see for this agency in the next five years?

MARY SCHAPIRO: I don't think that there's any doubt that the agency has had a difficult couple of years, but I think now more than ever, particularly in a crisis, we need a competent, very aggressive, very activist Securities and Exchange Commission. We are the only federal agency charged with protecting investors, those are our constituents, those are the people we should be serving and I'm highly committed to doing that. I would not have come to the SEC if I didn't feel like I had the freedom to move the agency in that direction. The markets are critically important, restoring investor confidence in the market is important, that's not going to happen if the SEC isn't doing a first class job and that's what we're committed to do.

STEPHANIE DHUE: Can the SEC do the job, can they police the markets, or does it just give people a false sense of security that their investments are being protected, when they're not.

MARY SCHAPIRO: I think the SEC can do the job. Does that mean we'll never miss a fraud or we'll never miss a scam? Of course not, the markets are enormous. We're an agency of only 3,500 people with close to 30,000 regulated entities, so we're small for the task, but with that said I think with an aggressive enforcement program, with a regulatory response to problems as they begin to emerge, so that the rules are written that protect the public more effectively, I think we can do a very, very good job. That said, investing always has risks and investors always need to have that in the front of their minds.

STEPHANIE DHUE: We've been speaking with Mary Schapiro, Chairman of the Securities and Exchange Commission, thanks for joining us.

MARY SCHAPIRO: Thanks it was my pleasure.

To read more on regulation and compliance please see our Hedge Fund Compliance and Regulation Center.

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