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SEC Spring 2019 Regulatory Agenda

In May 2019, the SEC published its latest version of its semiannual regulatory agenda and plans for rulemaking with the U.S. Office of Information and Regulatory Affairs. The Office of Information and Regulatory Affairs, which is an executive office of the President, publishes a Unified Agenda of Regulatory and Deregulatory Actions (“Agenda”) with actions that 60 departments, administrative agencies and commissions plan to issue in the near and long term.  The Agenda is published twice a year, and for several years I have blogged about each publication.

Like the prior Agendas, the Spring 2019 Agenda is broken down by (i) “Prerule Stage”; (ii) Proposed Rule Stage; (iii) Final Rule Stage; and (iv) 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 has increased again with 40 items as compared to 36 last fall and 21 on the Spring 2018 list.

As talked about further in this blog, items of interest that have not been on previous agenda’s include Rule 15c2-11 reform; proposals to amend the rules regarding the thresholds for shareholder proxy proposals under Rule 14a-8; amendments to address certain advisors’ reliance on the proxy solicitation exemptions in Rule 14a-2(b); amendments to modernize and simplify disclosures regarding Management’s Discussion & Analysis (MD&A), Selected Financial Data and Supplementary Financial Information; and amendments to Securities Act Rule 701 (the exemption from registration for securities issued by non-reporting companies pursuant to compensatory arrangements), and Form S-8 (the registration statement for compensatory offerings by reporting companies).

Items on the Agenda can move from one category to the next or be dropped off altogether.   The Spring 2019 Agenda has only one item listed in the pre-rule stage, which is the harmonization of exempt offerings to streamline the rules for such exempt offerings.  This topic was on the fall pre-rule list as well.

Eighteen items remain in the final rule stage, the same as the Fall Agenda; however, it is not the same items and some of the prior listed items have now been implemented.  Still included in the final rule stage are implementation of FAST Act report recommendations even though changes were recently implemented.  The final rule action relates to implementation of recommendations first proposed in late 2017 (see HERE ).  In March 2019, the SEC adopted amendments to Regulation S-K substantially as proposed – see HERE, which blog also has an up-to-date summary of the SEC’s disclosure effectiveness initiative actions.  The controversial Regulation Best Interest, which was adopted in June 2019, is listed on the final rule agenda. A review of the rules will be the topic of a future blog.

Also included in the final rule stage are amendments to the financial disclosures for registered debt security offerings. The proposed amendment was published last summer – see HERE.  Remaining on the final rule agenda are a few rule changes related to investment advisors and a few related to swaps, auditor independence with respect to loans or debtor-creditor relationships and amendments to the whistleblower program.

The recent proposed extension of testing-the-waters provisions to non-emerging growth companies has moved up from proposed rule stage to final rule stage – see HERE for a summary of the new proposed rules.  Moving up from proposed rule to final rule stage are rules related to Exchange-Traded Funds (ETF) (for basic information on ETFs, see HERE), and disclosure for unit investment trusts.

Although standards for covered clearing agencies was on the Spring proposed rule agenda, it has dropped off and instead a new definition of “Covered Clearing Agency” has been added to the final rule agenda list.  Risk mitigation techniques jumped from a long-term action to final rule stage.  Rounding out items on the final rule stage agenda are prohibitions and restrictions on proprietary trading and certain interests in, and relationships with hedge funds and private equity funds, Volcker Rule relief, amendment to the single issuer exemption for broker-dealers, and amendments to the rule for nationally recognized statistical rating organizations.

Items that were on the final rule list last Spring and have dropped off due to implementation include disclosure on hedging by employees, officers and directors (see HERE), modernization of property disclosure for mining companies (see HERE), disclosure on order-handling information and amendments to municipal securities disclosures.

Twenty-two items are included in the proposed rule stage.  As indicated in a few speeches by SEC officials (see HERE, for example), the proposed rule list includes reforms to 15c2-11 an item that has not been on prior lists.  As a practitioner that has a depth of experience with Rule 15c2-11 including its gaping shortcomings, I’m thrilled to see this on the list.  I am concerned, however, about the content of any upcoming proposed rule changes.  In early 2018, OTC Markets made some excellent recommendations for amendments to the rule and its process (see HERE);however, I’m not convinced that the current regulatory regime is focused on the rule changes that could help facilitate capital formation and liquidity for lower-priced securities.  If done properly, an amendment to rule 15c2-11 could have a tremendous impact on both reducing micro-cap fraud and facilitating smaller company capital formation and after-market liquidity.

Financial disclosures about acquired businesses remains on the proposed list and has been an open item for several years (see HERE).  Continuing the SEC’s disclosure effectiveness initiative, the proposed rules include modernization and simplification of disclosures regarding description of business, legal proceedings and risk factors, as well as Management’s Discussion & Analysis (MD&A), Selected Financial Data and Supplementary Financial Information.

Remaining on the proposed rule list is bank holding company disclosures, filing fee processing updates, disclosure of payments by resource extraction issuers, amendments to the definition of an accelerated filer (see HERE for the proposed rule changes), use of derivatives by registered investment companies and business development companies, amendments to marketing rules under the Advisors Act, fund of fund arrangements, and offering reform for business development companies.

Amendments to the transfer agent rules remains on the proposed rule list although it has been almost four years since the SEC published an advance notice of proposed rulemaking and concept release on new transfer agent rules (see HERE).  SEC top brass speeches suggest that this will finally be pushed over the finish line this year (see, HERE).

Further on the proposed rule list are amendments to procedures for investment company act applications, prohibition against fraud, manipulation, and deception in connection with security-based swaps, amendments to Title VII cross-border rules, customer margin requirements for securities futures, and market data distribution and market access.  Also included on the proposed rule list are amendments to the custody rules for investment companies and investment advisors.  This could be wishful thinking, but I am hoping this will address digital assets.

As mentioned above, new on the list are amendments to Rule 701 (the exemption from registration for securities issued by non-reporting companies pursuant to compensatory arrangements), and Form S-8 (the registration statement for compensatory offerings by reporting companies).  The SEC has recently amended rules and issued a concept release (see HERE and HERE) and appears committed to enacting much-needed updates and improvements to the rules.

New on the list are amendments to the rules regarding the thresholds for shareholder proxy proposals under Rule 14a-8 and amendments to address certain advisors’ reliance on the proxy solicitation exemptions in Rule 14a-2(b).  Shareholder proposals are an oft-debated topic as they cost companies tens of millions of dollars and significant time and management resources. The SEC often issues guidance on proposals, including recently in November 2017; however, companies and regulators universally agree that changes are necessary.  It is generally expected that the SEC rule proposals will include increasing the ownership and resubmission thresholds for Rule 14a-8 shareholder proposals. The SEC’s current ownership thresholds are (i) a holding period of one year and (ii) ownership of at least $2,000 in market value of a company’s shares. The SEC’s current resubmission thresholds allow a company to exclude proposals that were voted on at the company in the past five years and most recently received less than 3% if voted on once, 6% if voted on twice, and 10% if voted on three times. Under Rule 14a-2(b)(3), proxy advisory firms have a conditional exemption from many of the SEC’s proxy rules although they control much of the process and outcome.

Fifty-two items are listed as long-term actions, including many that have been sitting on the list for a long time now.  Still on the long-term actions are rules related to reporting on proxy votes on executive compensation (i.e., say-on-pay – see HERE), universal proxy, Form 10-K summary, corporate board diversity, simplification of disclosure requirements for emerging growth companies and forward incorporation by reference on Form S-1 for smaller reporting companies, Regulation A amendments, investment company advertising, and revisions to audit committee disclosures.

Although earnings releases and quarterly reports were on the Fall 2018 pre-rule list, and even though the SEC solicited comments on the subject in December (see HERE), the topic has been moved to long-term for now.

Highly debated and much needed, but still on the long-term agenda, are the amendments to the accredited investor definition (see HERE).  Also remaining on the long-term action list are Regulation Finders.  The topic of finders has been ongoing for many years, but unfortunately has not seen any traction.  See HERE for more information.

Other items remaining on the long-term agenda include amendments registration of security-based swaps and a few other swap-related rule changes, stress testing for large asset managers, prohibitions of conflicts of interest relating to certain securitizations, definitions of mortgage-related security and small-business-related security, numerous proxy rule amendments, conflict minerals amendments, amendments to Guide 5 on real estate offerings and Form S-11, incentive-based compensation arrangements, exchange traded products, and various broker-dealer-related rule changes. Also remaining on the long-term action list include simplification of disclosure requirements for emerging growth companies and forward incorporation by reference on Form S-1 for smaller reporting companies (EGCs may already incorporate by reference – see HERE), and Regulation Crowdfunding amendments.

Still on the long-term agenda are future Dodd-Frank rules, including proposed regulatory actions related to pay for performance (see HERE), executive compensation clawback (see HERE) and clawbacks of incentive compensation at financial institutions.

Other interesting items on the long-term agenda are rule changes to short sale disclosure reforms and registration of alternative trading systems.  Alternative trading systems have garnered interest for their potential use for securities token trading.

The Author

The Author
Laura Anthony, Esq.
Founding Partner
Anthony L.G., PLLC
A Corporate Law Firm

Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded public companies as well as private companies going public on the Nasdaq, NYSE American or over-the-counter market, such as the OTCQB and OTCQX. For more than two decades Anthony L.G., PLLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions, securities token offerings and initial coin offerings, Regulation A/A+ offerings, as well as registration statements on Forms S-1, S-3, S-8 and merger registrations on Form S-4; compliance with the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers; applications to and compliance with the corporate governance requirements of securities exchanges including Nasdaq and NYSE American; general corporate; and general contract and business transactions. Ms. Anthony and her firm represent both target and acquiring companies in merger and acquisition transactions, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The ALG legal team assists Pubcos in complying with the requirements of federal and state securities laws and SROs such as FINRA for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the small-cap and middle market’s top source for industry news, and the producer and host of LawCast.com, Corporate Finance in Focus. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.

Ms. Anthony is a member of various professional organizations including the Crowdfunding Professional Association (CfPA), Palm Beach County Bar Association, the Florida Bar Association, the American Bar Association and the ABA committees on Federal Securities Regulations and Private Equity and Venture Capital. She is a supporter of several community charities including sitting on the board of directors of the American Red Cross for Palm Beach and Martin Counties, and providing financial support to the Susan Komen Foundation, Opportunity, Inc., New Hope Charities, the Society of the Four Arts, the Norton Museum of Art, Palm Beach County Zoo Society, the Kravis Center for the Performing Arts and several others. She is also a financial and hands-on supporter of Palm Beach Day Academy, one of Palm Beach’s oldest and most respected educational institutions. She currently resides in Palm Beach with her husband and daughter.

Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.

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