18 BARRON’S February 8, 2021
tomer orders were executed at inferior
prices, the SEC found. Robinhood
didn’t admit or deny the agency’s find-
ings. “We are fully transparent in our
communications with customers
about our current revenue streams,” a
Robinhood spokesperson says, adding
that the company has improved its
best-execution processes.
Investors are also looking for the
SEC to hand back their megaphone.
Last year, the commission made it
tougher for investors to get share-
holder proposals on corporate proxy
statements, in part by raising the own-
ership threshold required to submit a
proposal. Another 2020 rule gave
management a louder voice in the
third-party proxy advice used by
many institutional investors. Major
elements of both rules will generally
first apply in the 2022 proxy season.
The effect of the rules was to “muz-
zle the voice of shareholders,” says
Amy Borrus, executive director of the
Council of Institutional Investors.
“Shareholders large and small are look-
ing to the SEC to step up its mission to
be the investor’s advocate,” she says,
including by reversing the two rules.
Another corporate governance is-
sue expected to receive renewed atten-
tion is a bit of unfinished business
from the soon-to-be 11-year-old Dodd-
Frank Act. The law directed the SEC
to adopt rules requiring public compa-
nies to claw back improperly awarded
incentive compensation in the event of
certain financial restatements. The
commission proposed a clawback rule
in 2015, but never completed it.
New laws that reshape financial
regulation will be difficult with the
Democrats’ razor-thin Senate advan-
tage. That makes the nominees to lead
the SEC and the Consumer Financial
Protection Bureau all the more impor-
tant. The personnel at the top of these
independent agencies “matters enor-
mously,” says Aron Szapiro, head of
policy research at Morningstar, and
President Biden has put forward picks
that reflect the Democratic consensus,
which is “very focused on ESG and
protecting investors.”
Gary Gensler, Biden’s pick to head
the SEC, pushed for greater transpar-
ency in derivatives trading when he
was chairman of the Commodity Fu-
tures Trading Commission. Rohit
Chopra, a commissioner of the Federal
Trade Commission and Biden’s choice
for CFPB director, advocated for bet-
ter treatment for borrowers in an ear-
lier stint as the CFPB’s student-loan Illustration by Matt Chase
W
hether you invest in
oil-and-gas companies
or trade Bitcoin, finan-
cial regulation under
the Biden administra-
tion will make its mark
on your portfolio—and
may even change the way you invest.
Regulatory actions on the horizon
are likely to give shareholders access
to new data to aid their decision-mak-
ing about companies, including man-
datory disclosures of climate risks and
board diversity. Rule changes could
also give them a louder voice in corpo-
rate-governance discussions.
Investor protection will come to the
fore, experts say, as regulators revisit
conflicts of interest in investment ad-
vice and tackle newer challenges, like
cryptocurrency regulations.
The financial-services industry
faces tougher enforcement of securi-
ties laws and consumer financial-pro-
tection rules, while industries across
the board must weigh how any new
required disclosure of environmental,
social, and governance (ESG) factors
will be perceived by investors and
ratings firms.
The to-do list for financial regula-
tors, meanwhile, is getting longer and
more pressing.
The volatile trading inGameStop
(ticker: GME) and other securities “is
going to be at the top of the SEC’s
agenda,” says Dennis Kelleher, head of
the public-interest group Better Mar-
kets and a member of the Biden tran-
sition’s agency review team for securi-
ties regulators. One issue he expects
the Securities and Exchange Commis-
sion to examine: the true costs to in-
vestors of commission-free trades.
Robinhood, the online trading app
at the center of the GameStop frenzy,
last year agreed to pay $65 million to
settle SEC claims that it didn’t ade-
quately disclose payments it received
from trading firms in exchange for
routing customer orders to them, an
arrangement known as payment for
order flow. Although Robinhood ad-
vertised commission-free trades, cus-
Biden’s Team
Puts Its Focus
On Financial
Regulation
Cryptocurrency, climate-risk
disclosure, consumer protection,
and the volatile trading in
GameStop are all expected to
be focuses of the SEC and
other regulatory agencies.
What investors can expect.
By ELEANOR LAISE