SEC

NYSE Amends Shareholder Approval Requirements In Private Securities Transactions Involving Substantial Shareholders

On December 26, 2023, the SEC approved an NYSE rule change to make it easier for listed companies to raise money from existing substantial shareholders. In particular, the NYSE has amended Section 312.03(b) and 312.04 of the NYSE Listed Company Manual to modify the circumstances under which a listed company must obtain shareholder approval prior to the sale of securities below the Minimum Price to a substantial security holder.

Background

Section 312.03 of the NYSE Listed Company Manual lists the circumstances upon which shareholder approval must be obtained prior to the issuance of securities. Pre-amendment Section 312.03(b)(i) requires shareholder approval prior to the issuance of common stock, or of securities convertible into or exercisable for common stock, in any transaction or series of related transactions, to a director, officer or substantial security holder of the company (each a “Related Party”) if the number of shares of common stock to be issued, or if the number of shares of common stock

February 6, 2024

SEC Issues Staff Report On Accredited Investor Definition

On December 15, 2023, the SEC issued a staff report on the accredited investor definition. The report comes three years after the most recent amendments to the accredited investor definition (see HERE).

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) requires the SEC to review the accredited investor definition, as relates to natural persons, at least once every four years to determine whether the definition should be modified or adjusted. The last two reports can be read HERE and HERE.

The current report focuses on the composition of the accredited investor demographic, including since the last definition amendments; the extent to which accredited investors have the financial sophistication, ability to sustain the risk of loss of investment, and access to information that have traditionally been associated with an ability to fend for themselves; and accredited investor participation in exempt offerings.

I’ve included the complete current accredited investor definition at the end of this blog.

Background

All

January 23, 2024

SEC Fall 2023 Regulatory Agenda

On December 6, 2023, the SEC published its semi-annual Fall 2023 regulatory agenda (“Agenda”) and plans for rulemaking. The Agenda is published twice a year, and for several years I have blogged about each publication. Although items on the Agenda can move from one category to the next, be dropped off altogether, or new items pop up in any of the categories (including the final rule stage), the Agenda provides valuable insight into the SEC’s plans and the influence that comments can make on the rulemaking process.

The Agenda is broken down by (i) Proposed Rule Stage; (ii) Final Rule Stage; and (iii) Long-term Actions. The Proposed and Final Rule Stages are intended to be completed within the next 12 months and Long-term Actions are anything beyond that. The number of items to be completed in a 12-month time frame is 43, down from 55 on the Spring 2023 Agenda.

Fourteen items are included in the proposed rule stage, down

January 16, 2024

What Is Regulation M?

Regulation M, which was adopted in 1996, is designed to prevent market manipulation by participants in a securities offering by regulating certain activities. In general, Regulation M restricts distribution participants (underwriters, placement agents and their affiliates), issuers, selling security holders and their affiliates, from bidding for, purchasing, or attempting to induce other to bid for or purchase, certain securities during an applicable restricted period. Regulation M also prohibits any person that has sold short a security that is the subject of a registered offering from purchasing securities in the offering from an underwriter, or broker or dealer participating in the offering if the short sale took place during a specified period prior to the pricing of the registered offering.

Although a large part of Regulation M relates to underwriter and broker dealer conduct and due diligence obligations, it is helpful for issuers and selling security holders to understand the rules as pertains to them. Regulation M consists of six

January 9, 2024

NASDAQ Amends Rules For Waivers To Code Of Conduct

On September 5, 2023, Nasdaq adopted amendments to Listing Rule 5610 and IM-5610 requiring listed companies to maintain a code of conduct and to disclose certain waivers. This is also a good time to discuss the code of conduct/code of ethics requirements applicable to all companies subject to the Securities Exchange Act of 1934 (“Exchange Act”) reporting requirements.

Code of Conduct/Code of Ethics

Section 406(c) of the Sarbanes-Oxley Act of 2002 (“SOX”) requires all companies that are subject to the Exchange Act reporting requirements to disclose whether they have adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. If the company has not adopted such a code, it must explain why it has not done so.

SOX defines a code of ethics as written standards reasonably designed to deter wrongdoing and to promote: (i) honest and ethical conduct including related to conflicts of

December 26, 2023

SEC Suspends New Share Repurchase Disclosure Rules

In a win for conservatives, the recent amendments to the share repurchase rules are officially on hold. Adopted on May 3, 2023 (see HERE) the new disclosure requirements would have taken effect for inclusion in the upcoming 10-K season. Following a successful court challenge, on November 22, 2023, the SEC issued an order postponing the effective date of the new rules pending further SEC action.

Background

On May 3, 2023, the SEC adopted amendments to Securities Exchange Act Rule 10b-18, which provides issuers and affiliates with a non-exclusive safe harbor from liability for market manipulation under Sections 9(a)(2) and 10(b) and Rule 10b-5 under the Securities Exchange Act of 1934, as amended (“Exchange Act”) when issuers bid for or repurchase their common stock.

The SEC allows for limited methods that an issuer can utilize to show confidence in its own stock and assist in maintaining or increasing its stock price. One of those methods is Exchange Act Rule

December 19, 2023

Nasdaq Adopts New Reverse Split Rule Change

On November 1, 2023, the SEC approved Nasdaq’s rule changes to the notification and disclosure requirements for reverse splits. The new rules went effective immediately upon approval. For the proposed rule changes see HERE.

Background

After the market highs of the second half of 2020 and all of 2021, we have all witnessed the general decline, including noticeably depressed valuations and market price, especially in the small cap space. In 2022, Nasdaq processed 196 reverse stock splits, compared to 31 in 2021 and 94 in 2020. As of June 23, 2023, Nasdaq has processed 164 reverse stock splits, and projects significantly more throughout 2023. The majority of reverse splits are completed by companies that trade on the Nasdaq Capital Market tier of the exchange and are completing the split to maintain the minimum $1.00 bid price to avoid delisting.

In response to concerns by Nasdaq that market participants do not have enough visibility on these companies or their

December 12, 2023

SEC Adopts Revisions To The Privacy Act

On September 20, 2023, the SEC approved final revisions to the Privacy Act, governing the handling of personal information in the federal government (See HERE for a review of the proposed rules). The revisions codify current practices for processing requests for information made by the public under the Privacy Act and result in an entire re-write of the current rules. The SEC last updated the Privacy Act in 2011.

Background

The Privacy Act is the principal law governing the handling of personal information in the federal government, regulating the collection, maintenance, use, and dissemination of information about individuals that is maintained in systems of records by federal agencies. The Privacy Act also allows individuals to access information about them and provides a method to correct inaccurate records.

Final New Rules

The amended rules result in a complete rewrite of the Privacy Act to: (i) add a provision setting forth the process by which individuals may be provided with

December 5, 2023

SEC Proposes New EDGAR Rules

On September 13, 2023, the SEC proposed rule and form amendments to the EDGAR system dubbing the updates as EDGAR Next. The rule changes are meant to enhance security and improve access to the EDGAR system. My view is that will accomplish the former and not the latter. The changes would require EDGAR filers to authorize identified individuals who would be responsible for managing the filers’ EDGAR accounts. Individuals acting on behalf of filers on EDGAR would need individual account credentials to access those EDGAR accounts and make filings. As part of the proposed rule changes, the SEC is making a beta software public for testing and feedback which software would eventually be used by filers if the proposed new rules are implemented.

The proposed rules would amend Rules 10 and 11 of Regulation S-T and amend Form ID. Only the identified authorized individuals would be able to access a filer’s EDGAR account. The authorized individual(s) need not be

November 28, 2023

SEC Publishes Sample Comment Letter Regarding XBRL Disclosure

Back in June, 2018, the SEC adopted the Inline XBRL requirements (see HERE) and since that time almost all new disclosure rules require either XBRL tagging or Inline XBRL. In December 2022 a new law was passed requiring the SEC to “establish a program to improve the quality of the corporate financial data filed or furnished by issuers under the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”),” causing the SEC to focus even more on XBRL use. As a result, in September 2023, the SEC published a sample letter to companies regarding their XBRL disclosures.

The sample letter consists of six comments, which I have included in full below followed by a short commentary on the point.

Your filing does not include the required Inline XBRL presentation in accordance with Item 405 of Regulation S-T. Please file an amendment to the filing to include the required Inline XBRL presentation.

November 21, 2023

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SEC

NYSE Amends Shareholder Approval Requirements In Private Securities Transactions Involving Substantial Shareholders

SEC Issues Staff Report On Accredited Investor Definition

What Is Regulation M?

NASDAQ Amends Rules For Waivers To Code Of Conduct

Nasdaq Adopts New Reverse Split Rule Change

SEC Adopts Revisions To The Privacy Act

SEC Proposes New EDGAR Rules

SEC Publishes Sample Comment Letter Regarding XBRL Disclosure

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