It was another busy week at the Securities and Exchange Commission.

In addition to the new cooperation tools and policy statement and the ramp up of the new specialized enforcement units and Office of Market Intelligence previously reported, SEC Chair Mary Schapiro testified before the Financial Crisis Inquiry Commission on her views about the causes of the recent financial crisis. Schapiro appeared alongside Assistant Attorney General Lanny Breuer and Federal Deposit Insurance Corp. Chair Sheila Bair. Testimony for all those who appeared before the panel during its first hearing can be found here.

In brief, Schapiro said the crisis resulted from "many interconnected and mutually reinforcing causes," including the rise of mortgage securitization and the resulting weaker underwriting standards by originators and excessive reliance on credit ratings by investors; a widespread view that markets were almost always self-correcting and an inadequate appreciation of the risks of deregulation that resulted in weaker standards and regulatory gaps in some areas; the proliferation of complex financial products who's risks weren't fully transparent or understood; perverse incentives and asymmetric compensation arrangements that encouraged significant risk taking; insufficient risk management and risk oversight by companies involved in marketing and purchasing complex financial products; and a siloed financial regulatory framework that lacked the ability to monitor and reduce risks flowing across regulated entities and markets.

The Commission also voted to propose a new rule that would effectively prohibit broker-dealers from providing customers with "unfiltered" or "naked" access to an exchange or alternative trading system. The proposed rule would require broker-dealers to establish, document, and maintain a system of risk-management controls and supervisory procedures reasonably designed to manage the financial, regulatory, and other risks related to its market access, including access on behalf of sponsored customers. The text of the proposing release hasn't yet been posted to the SEC's Website, but the remarks of the Commissioners from the open meeting can be found here. Comments on the proposal are due 60 days after its publication in the Federal Register.

The SEC also voted to publish a Concept Release seeking comment on the structure of equity markets, including issues as high-frequency trading, co-locating trading terminals, and markets that don't publicly display price quotations, to assess how individual and institutional investors are faring in the current market structure, and whether that structure promotes capital formation in companies with varying levels of market capitalization. Public comments on the concept release are due 90 days after its publication in the Federal Register.

The SEC also filed new charges against Bank of America that allege that the company violated federal proxy rules by failing to disclose extraordinary financial losses at Merrill Lynch prior to a shareholder vote to approve the merger between the two.

The new complaint alleges that BofA learned prior to the shareholder vote that Merrill Lynch had incurred a net loss of $4.5 billion in October 2008 and estimated billions of dollars of additional losses in November. The SEC alleges that BofA's failure to disclose the information violated its undertaking to update shareholders concerning fundamental changes to previously disclosed information, and rendered its prior disclosures materially false and misleading. The filing followed a ruling by Judge Jed Rakoff that the SEC's proposed charges relating to the Merrill losses should be filed separately from an earlier SEC complaint charging BofA with misleading investors about billions of dollars in bonuses that were being paid to Merrill executives. That trial is slated to begin March 1.

The staff in Corporation Finance also added another Compliance & Disclosure Interpretation (Question 105.07) to the batch of interpretations first issued on Jan. 11 relating to non-GAAP financial disclosures, as reported earlier.

And don't forget, comments on the SEC's proxy access proposal, Facilitating Shareholder Director Nominations, are due Jan. 19. Compliance Week will provide coverage of the new batch of comments in an upcoming edition.

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