Publications

Commissioner Peirce’s Farewell Address: Changes to Rule 206(4)-8 Incoming?

Summary: Looking ahead to her November departure from the SEC, Commissioner Hester Peirce delivered what might be described as a farewell address to the U.S. Chamber of Commerce Capital Markets Summit. The speech lauded the strength of the U.S. capital markets and emphasized that “one of the reasons our capital markets work so well is that government generally does not meddle with them.” Expounding on this point, Peirce highlighted areas where she believes the Commission has recently taken steps to act “within the boundaries that the Constitution and Congress drew for it,” including ending the Commission’s “No Deny” policy and proposed amendments to Form PF. But Peirce warned that the “Commission has more work to do,” including with respect to the Commission’s authority under Section 206(4) of the Advisers Act.  Peirce noted that the “best reading” of Section 206(4) is that it “prohibits knowing or intentional misconduct, not merely negligent conduct.” In that spirit, Peirce said that despite her earlier support for enforcement actions based on negligent violations of Rule 206(4)-8, which broadly prohibits advisers from making false or misleading statements to or otherwise defrauding fund investors, she has “come to agree” with Chairman Atkins who, in 2007 at the time of adoption, disagreed with a negligence standard for the rule. 

Takeaway: Peirce’s speech repeated what has become the hallmark of the Atkins Commission: a more restrained SEC that seeks to act within the strict bounds of its statutory mandate. Questioning whether a violation of Rule 206(4)-8 merely requires a finding of negligence could have implications for future enforcement actions, and suggests the Atkins Commission—with Peirce or perhaps her replacement—may begin to require knowledge or intent to sustain an enforcement action.

Best Practice Tip: For now, a violation of Rule 206(4)-8 still only requires a negligence standard, so advisers should continue to maintain their existing policies and procedures to ensure compliance with the rule. We will stay tuned for any indication that the Commission intends to move away from the negligence standard in future enforcement actions. 

SEC and CFTC Seek Public Comment to Harmonize Rules for Classification of Securities-Based Swaps

Summary: On June 18, the SEC and CFTC issued a joint request for public comment to clarify and harmonize derivatives product definitions, including the classification of securities-based swaps. The joint request for comment builds on the SEC and CFTC’s April 2026 joint announcement that they had entered into a Memorandum of Understanding to “guide coordination and collaboration between the two agencies.”  Of interest, the joint request notes that: “market participants are raising questions about whether certain event contracts are swaps, SBS, or mixed swaps, or types of instruments that fall within statutory exclusions from the ‘swap’ definition” and goes on to specifically ask: “What types of event contracts or other innovative products or product structures that may touch on the regulatory interests of both Commissions have raised interpretative questions for market participants, and how should those questions be resolved?”

Takeaway: The joint request for public comment suggests that the SEC-CFTC MOU from earlier this year might have teeth and that the agencies are indeed looking for opportunities to harmonize their rulesets. With respect to event contracts, we anticipate that the agencies will issue guidance further clarifying how to determine whether and under what circumstances an event contract that is related to a corporate issuer (or a group of corporate issuers) might be considered a security-based swap, in which case the contract would be subject to the SEC’s jurisdiction (rather than the CFTC’s jurisdiction) and all the enforcement tools that come with it, including probes concerning securities-based insider trading. 

Best Practice Tip: Stay tuned for updates on any developments coming out of the request for public comment in future editions of SEC Watch.

Humphrey’s Executor Overruled

Summary: On June 29, the Supreme Court handed down its decision in Trump v. Slaughter. The case arose out of President Trump’s firing of former FTC Commissioners Rebecca Slaughter and Alvaro Bedoya without cause. The FTC’s authorizing statute states that FTC Commissioners may be removed only “for inefficiency, neglect of duty, or malfeasance in office”—in other words, for cause.  Slaughter sued, seeking reinstatement of her position. The Supreme Court ruled in favor of President Trump, holding that the FTC’s for cause removal provision violated the Constitution by impeding the President’s removal power. In so ruling, the Supreme Court overruled its decision in Humphrey’s Executor v. United States, which had considered the FTC’s for cause removal clause and ruled against President Roosevelt, who had fired an FTC Commissioner without cause. The Supreme Court had reasoned that because FTC Commissioners’ duties did not require the use of executive power, the Commissioners need only answer to Congress and the courts. In rejecting Humphrey’s Executor, the Supreme Court declined to define what is included in the “executive power,” leaving open the possibility that some positions created by Congress may not come with executive power. 

Takeaway: While the SEC’s authorizing statute is silent on whether Commissioners may only be removed for cause, a for cause removal protection has previously been presumed. The Supreme Court’s decision in Slaughter has eliminated that presumed protection, allowing removal of SEC Commissioners by the President at-will and without cause.

Best Practice Tip: Time will tell what impact the Slaughter decision will have on the SEC. Presumably—as has been the case with the FTC since the firing of Slaughter and Bedoya—Presidents could fire Commissioners from the opposing party upon taking office and not appoint replacements, allowing for one-party control. The net effect may be even greater policy gyrations from administration to administration that could create challenges for market participants seeking a predictable regulatory environment.

SEC Hiring Update

The SEC posted a number of new job openings this month, including in the Enforcement Division’s Complex Financial Instruments Unit and Asset Management Unit. These postings suggest some backfilling after last year’s spate of departures.  The increased headcount will eventually lead to increased investigative activity.