Good morning, everyone. This is an open meeting of the Securities and Exchange Commission on May 20, 2015 under the Government in the Sunshine Act.

The Commission today will consider two recommendations of the staff to modernize and augment the information reported by both registered investment companies, which include mutual funds and ETFs, and investment advisers. These proposals are part of a series of rulemakings to enhance the SEC’s monitoring and regulation of the asset management industry. We will discuss the two recommendations together and then will vote separately on each following the discussion.

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The oversight of funds and advisers is one of the most important functions of the Commission. Over the past 75 years, our regulatory program for asset management has grown and adapted, guided by our mission, to address the challenges of this important, ever-evolving and growing area of our financial markets. Today, we once again are doing that.

Reforms for an Evolving Industry

It is estimated that there are more than 28,000 funds and investment advisers that file reports with the Commission. Assets of registered funds exceeded $18 trillion at the end of 2014, and assets managed by registered investment advisers exceeded $62 trillion. The asset management industry also continues to develop new product structures and investment strategies. While offering investors additional options that may be attractive, these developments can also increase the complexity and potential risks of fund portfolios and operations.

Last December, after reviewing these developments and the long history of the Commission’s regulation of asset management, I outlined a number of initiatives designed to address the increasing complexity of the asset management industry — particularly, the risks that arise from current portfolio compositions and fund operations. The Commission must first modernize and enhance the data reporting for registered investment companies and investment advisers. The Commission also must require registered investment companies to have more robust controls in place to identify and manage the risks of their increasingly diverse portfolios. And the Commission must require additional measures to address the impact of market stress events or when an investment adviser is no longer able to serve its clients.

Collectively, these efforts will further the Commission’s long-standing mission to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. They will make the asset management industry stronger and more resilient, improving the ability of funds to manage their risks and — critically — the Commission’s ability to supervise funds and investment advisers. And these reforms will enable the Commission to monitor and address as appropriate any risks that asset managers’ activities may pose to the overall stability of the U.S. financial system. In this regard, our actions will complement the ongoing efforts of the Financial Stability Oversight Council to further understand whether systemic risks may be presented by the activities and products of the asset management industry.

Modernizing and Enhancing Reporting for Today’s Fund Industry

It should come as no surprise that enhancing data collection is a critical part of this undertaking. Since I arrived at the Commission, we have been focused on the need for better data and analytics across all of our operations, and enhancing data reporting for both funds and advisers is essential. The Commission relies on information included in reports filed by funds and investment advisers for many purposes, including monitoring industry trends, informing policy and rulemaking, identifying risks, and assisting Commission staff in examinations and enforcement cases. Investors also rely on this information to better assess different fund products, make more informed investment decisions, and draw conclusions about the asset management industry’s practices and risks.

The recommendations before us today will vastly improve the type and format of the information that funds provide to the Commission and to investors. Investors will have better quality and greater access to information about their fund investments and investment advisers, and the SEC will have more and better information to monitor risks in the asset management industry. The staff will discuss the recommendations in detail, but there are five key enhancements that I would like to briefly highlight.

First, the reforms will require that additional information be provided about funds in certain key areas, including data related to derivatives, securities lending activities, liquidity and pricing of portfolio instruments, and aspects of exchange-traded funds. This information is vital to assessing the risks of evolving fund activities and their potential impact on investors.

Second, funds will also be required to disclose certain basic risk metrics to assist the Commission and investors in understanding fund exposures to potential changes in risk factors and asset prices. Analyzing these risk metrics will enhance our ability to monitor risks and understand trends in the industry as a whole.

Third, the recommendations will require other new categories of information to be filed by registered investment advisers, particularly with respect to separately managed accounts and the assets and derivatives held in those accounts. Approximately 73% of registered investment advisers manage a wide variety of client assets in separately managed accounts and the Commission needs a wider and deeper lens to assess possible risks.

Fourth, the recommendations will modernize how data is transmitted to shareholders by providing investors with shareholder reports and portfolio information on fund websites while still preserving the ability of investors who prefer to receive paper reports to do so.

Fifth, the financial statements of funds would be subject to enhanced and standardized disclosure requirements for derivatives and securities lending.

Advancing a Broad Oversight Program for Asset Management

Looking beyond today’s anticipated actions, the staff is also developing recommendations to enhance the management and disclosure of liquidity risk by mutual funds and ETFs, and to update the liquidity standards for those investment vehicles. The staff is also reviewing options for specific requirements for the use of derivatives by funds, including measures to appropriately limit the leverage these instruments may create, in addition to enhanced risk management programs for such activities. And the staff is studying new requirements for stress testing by large investment advisers and large funds, as well as provisions for transition plans after a major disruption in an investment adviser’s operations. With these efforts and others, the Commission will continue to ensure that the regulation of funds and investment advisers is appropriately calibrated to the benefits and risks they present for investors and the marketplace.

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Before turning it over to the staff for their presentation, I would like to formally welcome David Grim to his first open meeting as the Director of the Division of Investment Management. Congratulations, Dave — you do a tremendous job for investors and for the Division.

I would like to thank an impressive group from the Commission staff for applying their deep expertise of investment companies and investment advisers to this rulemaking. First, thank you to Dave and his team from the Division of Investment Management: Diane Blizzard, Sara Cortes, Daniel Kahl, Alan Dupski, Sarah Buescher, Michael Pawluk, Daniel Chang, Matthew DeLesDernier, Tim Dulaney, Bridget Farrell, Tim Husson, Jay Krawitz, Isaac Kuznitz, Andrea Magovern, and Chris Stavrakos. And although he is no longer with the SEC, I would like to acknowledge the great work of our former director of Investment Management, Norm Champ, on these initiatives.

Throughout this rulemaking, SEC economists from DERA provided economic analyses and invaluable input on data related to funds and advisers that was essential in formulating these reforms. I thank Director Mark Flannery, Christof Stahel, Matthew Kozora, Dan Hiltgen, Walter Hamscher and Chris Vincent for their excellent work. From the Office of Compliance Inspections and Examinations, I would like to thank Jim Reese, Katherine Feld, Tom Kirk and Steven Dittert.

Great thanks also to Annie Small, Meridith Mitchell, Lori Price, Cathy Ahn, Kevin Christy, Jill Felker, and Monica Lilly from the Office of the General Counsel; Mark Jacoby, Christopher Rickli, and Christopher Rogers from the Office of the Chief Accountant; David Frederickson, Raymond Be, Mark Kronforst, and Todd Hardiman from the Division of Corporation Finance; Michael Gaw, George Gilbert, Michael Coe, Tina Barry, Arun Manoharan and Mark Saltzburg from the Division of Trading and Markets; John Farinacci from the Division of Enforcement; Rick Fleming and Marc Sharma from the Office of the Investor Advocate; Lori Schock and Owen Donley from the Office of Investor Education and Advocacy; and Pamela Dyson, Tammy Borowski, and Vanessa Anderson from the Office of Information Technology.

I would also like to express gratitude to my fellow Commissioners and all of our counsels for their engagement, support and comments on these recommendations.