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SEC Fall 2019 Regulatory Agenda

In late 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) “Pre-rule 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 with 47 items as compared to 40 on the spring 2019 list.

Items on the Agenda can move from one category to the next or be dropped off altogether.  Only one item is listed in the fall 2019 pre-rule state and that is portfolio margining harmonization.  The only item that had been on the spring 2019 agenda in the pre-rule category was the harmonization of exempt offerings which moved to the proposed rule stage after the SEC published a concept release in June 2019 (see HERE).

Thirty-one items are included in the proposed rule stage, up from 22 on the spring list.  Items include amendments to certain provisions of the auditor independence rules (some amendments were adopted in June 2019 and additional amendments proposed on December 30, 2019); broker-dealer reporting, audit and notifications requirements and three amendments to Regulation NMS.

Amendments to Rule 15c2-11, which first appeared on the agenda in spring 2019, remains on the proposed rule list.  The SEC proposed amendments to Rule 15c2-11 in late September (see HERE) after several speeches setting the stage for a change.  I’ve written about 15c2-11 many times, including HERE and HERE.  In the former blog I discussed OTC Markets’ comment letter to FINRA related to Rule 6432 and the operation of 15c2-11, and in the latter I talked about SEC Chairman Jay Clayton’s and Director of the Division of Trading and Markets Brett Redfearn’s speeches on the subject.  Comments and responses to the proposed rules have been voluminous and largely negative.  The early sentiment is that the proposed rules would shut down an important trading market for day traders and sophisticated investors that trade in the non-reporting or minimal information space on a regular basis, or even for a living.  However, parts of the proposed rule changes are very good and would be hugely beneficial to this broken system.  At this point it is unclear as to the future of these much-needed changes.

Other items that first appeared on the spring agenda and have been gaining some traction and that are listed on the proposed rule stage include: (i) proposals to amend the rules regarding the thresholds for shareholder proxy proposals under Rule 14a-8 (see HERE); and (ii) amendments to address certain advisors’ reliance on the proxy solicitation exemptions in Rule 14a-2(b) (see HERE).  Both proposed rules have been controversial but should proceed to final within the planned 12 months.  Also first proposed in spring and still on the proposed rule list are amendments to modernize and simplify disclosures regarding Management’s Discussion & Analysis (MD&A), Selected Financial Data and Supplementary Financial Information.  Some amendment to MD&A were adopted in March 2019 (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 which were proposed in August 2019 (see HERE).

Earnings releases and quarterly reports were on the fall 2018 pre-rule list and then moved to long-term on the spring 2019 list.  The topic is back on the proposed rule list.  The SEC solicited comments on the subject in December 2018 (see HERE), but has yet to publish proposed rule changes.

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) remain on the proposed rule list.  The SEC has recently amended the rules and issued a concept release (see HERE and HERE) and appears committed to enacting much-needed updates and improvements to the rules.

Highly debated and much needed, the amendments to the accredited investor definition moved from the long-term list to the proposed rule stage.  The SEC published its report on the definition of accredited investors back in December 2015 (see HERE) and finally issued a proposed rule in December 2019 (see HERE).  As mentioned in my blog on the subject, as a whole industry insiders, including myself, are pleased with the proposal and believe it will open up private investment opportunities to a wider class of sophisticated investors, while still maintaining investor protections.

Other items moved up from long-term to proposed-rule stage include executive compensation clawback (see HERE) and clawbacks of incentive compensation at financial institutions.  Clawback rules would implement Section 954 of the Dodd-Frank Act and technically require that national securities exchanges require clawback provisions as a listing qualification.  Also moved up from the long-term list are amendments to Guide 5 on real estate offerings and Form S-11, Regulation Crowdfunding amendments, and Regulation A amendments.

New to the list, appearing in the proposed rule category are amendments to Form 13F filer thresholds, investment company summary shareholder report, and registration of investment advisers to rural business investment companies.

Remaining on the proposed rule list is bank holding company disclosures (proposed rules published in September 2019); filing fee processing updates (proposed rules published in October 2019); disclosure of payments by resource extraction issuers (proposed rules published in December 2019); use of derivatives by registered investment companies and business development companies; amendments to marketing rules under the Advisors Act; amendments to the custody rules for investment advisors; procedures for investment company act applications; prohibition against fraud, manipulation, and deception in connection with security-based swaps; and market data distribution and market access.

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, for example).

Sixteen items are included in the final rule stage, reduced from 18 on the spring list.  Financial disclosures about acquired businesses has moved to the final rule stage with amendments having been proposed in May 2019 (see HERE).  The matter has been an open item for several years (see HERE).

Also included in the final rule stage are amendments to the financial disclosures for registered debt security offerings. The proposed amendment was published during the summer in 2018 (see HERE). Although still on the final rule list, the SEC adopted final amendments extending testing-the-waters provisions to non-emerging growth companies in October 2019 (see HERE)

Amendments to the definition of an accelerated filer has moved up from the proposed rule stage to final rule stage (see HERE for the proposed rule changes). Fund of fund arrangements (proposed rules were issued in December 2018), offering reform for business development companies (proposed rules published in March 2019), amendments to Title VII cross-border rules (final rules adopted in September 2019), and customer margin requirements for securities futures (proposed rules published in July 2019) have also moved up from proposed to the final rule stage.

Other items still in the final rule stage include rules related to exchange-traded funds (ETF) (for basic information on ETFs, see HERE), disclosure for unit investment trusts and offering variable insurance products, recordkeeping and reporting for security based swap dealers (new rules were adopted in September 2019), a new definition for covered clearing agency (last amended in September 2016), risk mitigation techniques (new rules were adopted on December 18, 2019), amendments to the whistleblower program, amendments to the SEC’s Rules of Practice and prohibitions and restrictions on proprietary trading and certain interests in, and relationships with, hedge funds and private equity funds (new rules adopted in November 2019).

Several items have dropped off the final rule list as they have now been implemented and completed, including implementation of FAST Act report recommendations (see HERE); the controversial Regulation Best Interest, which was adopted in June 2019; amendment to the single issuer exemption for broker-dealers which was adopted in June 2019; auditor independence with respect to loans or debtor-creditor relationships adopted in June 2019; amendments to the single issuer exemption for broker-dealers adopted in June 2019; amendments to the rule for nationally recognized statistical rating organizations adopted in August 2019; and amendments to the Volcker Rule which were implemented in August 2019.

Thirty-seven items are listed as long-term actions (down from 52), including many that have been sitting on the list for a long time now.  Implementation of Dodd-Frank’s pay for performance (see HERE) has sat on the long-term list for several years now.  Other items still on the long-term list include universal proxy (originally proposed in October 2016 – see HERE); and corporate board diversity (although nothing has been proposed, it is a hot topic); and the definitions of mortgage-related security and small-business-related security.

Also still on the long-term list (or added to the list) are numerous Dodd-Frank mandated provisions including additional proxy process amendments; reporting on proxy votes on executive compensation (i.e., say-on-pay – see HERE); stress testing for large asset managers; prohibitions of conflicts of interest relating to certain securitizations; incentive-based compensation arrangements; removal of certain references to credit ratings under the Securities Exchange Act of 1934; conflict minerals amendments (being challenged in lengthy court proceedings on constitutional First Amendment basis); and covered broker-dealer provisions under Title II of Dodd-Frank.

New to the list are asset-backed securities disclosures (last amended in 2014); mandated electronic filings; Regulation AB amendments; modernization of investment company disclosures, including fee disclosures; custody rules for investment companies; amendments to the Family Office Rule; amendments to Rule 17a-7 under the Investment Company Act concerning the exemption of certain purchase or sale transactions between an investment company and certain affiliated persons; broker-dealer liquidity stress testing, early warning, and account transfer requirements; additional changes to exchange-traded products; recordkeeping and risk controls specific to algorithmic trading; amendments to the rules regarding the consolidated audit trail; execution quality disclosure; credit rating agencies’ conflicts of interest; amendments to requirements for filer validation and access to the EDGAR filing system and simplification of EDGAR filings.

Also new to the list are a few electronic filing matters including electronic filing of broker-dealer annual reports, financial information sent to customers, and risk-assessment reports, and electronic filing of Form 1 by a prospective national securities exchange and amendments to Form 1 by national securities exchanges; Form 19b-4(e) by SROs that list and trade new derivative securities products; and Forms ATS and ATS-R regarding the initial, quarterly, and cessation of operation reports by ATSs.

Several swap-based rules remain on the long-term list or have been added to the list including ownership limitations and governance requirements for security-based swap clearing agencies, security-based swap execution facilities, and national exchanges; end user exception to mandatory clearing of security-based swaps; registration and regulation of security based swap execution facilities; and establishing the form and manner with which security-based swap data repositories must make security-based swap data available to the SEC.

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 gained any traction.  See HERE for more information.

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

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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