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SEC Fall 2020 Regulatory Agenda

The SEC’s latest version of its semiannual regulatory agenda and plans for rulemaking has been published in the federal register.  The Fall 2020 Agenda (“Agenda”) is current through October 2020.  The Unified Agenda of Regulatory and Deregulatory Actions contains the Regulatory Plans of 28 federal agencies and 68 federal agency regulatory agendas. The Agenda is published twice a year, and for several years I have blogged about each publication.

Like the prior Agendas, the Fall 2020 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 is down to 32 items.  The Spring Agenda had 42 and the Fall 2019 had 47 on the list.

Items on the Agenda can move from one category to the next or be dropped off altogether.  New items can also pop up in any of the categories, including the final rule stage showing how priorities can change and shift within months.  Portfolio margining harmonization was the only item listed in the pre-rule stage in the Fall 2019 and Spring 2020 Agendas.  It remained in that category, but the newest Agenda added prohibition against fraud, manipulation, and deception in connection with security-based swaps to the pre-rule stage moving it down in priority from the previous proposed rule category.

Sixteen items are included in the proposed rule stage, down from 19 in Spring 2020 and 31 on the Fall 2019 list.  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.  In May 2018, SEC has amended the rules and issued a concept release (see HERE and HERE   In November 2020, the SEC proposed new rules to modernize Rule 701 and S-8 and to expand the exemption to cover workers in the modern-day gig economy.

Amendments to the transfer agent rules still remain on the proposed rule list although it has been four years since the SEC published an advance notice of proposed rulemaking and concept release on new transfer agent rules (see HERE).  Former SEC top brass suggested that it would finally be pushed over the finish line last year but so far it remains stalled (see, for example, HERE).

Other items that are still on the proposed rule list include mandated electronic filings increasing the number of filings that are required to be made electronically; additional proxy process amendments; amendments to Guide 5 on real estate offerings and Form S-11; electronic filing of broker-dealer annual reports, financial information sent to customers, and risk-assessment reports; amendment to the registration of alternative trading systems (ATS) for government securities; investment company summary shareholder report and modernization of certain investment company disclosures; amendments to the family office rule; and broker-dealer reporting, audit and notifications requirements.  Also still in the proposed rule stage is a potential amendment to Form PF, the form on which advisers to private funds report certain information about private funds to the SEC.

Items moved up from long-term to proposed-rule stage include execution quality disclosure; and records to be preserved by certain exchange members, brokers and dealers.

New to the list and appearing in the proposed rule stage are the controversial amendments to the Rule 144 holding period and Form 144 filings.  In December 2020, the SEC surprised the marketplace by proposing amendment to Rule 144, which would prohibit the tacking of a holding period upon the conversion of variably priced securities (see HERE).  The responsive comments have been overwhelmingly opposed to the change, with only a small few in support and those few work together in plaintiff’s litigation against many variably priced investors.  Many of the opposition comment letters are very well thought out and illustrate that the proposed change by the SEC may have been a knee-jerk reaction to a perceived problem in the penny stock marketplace.  I wholly oppose the rule change and hope the SEC does not move forward.

Another controversial new item appearing on the proposed rule stage list is enhanced listing standards for access to audit work papers and improvements to the rules related to access to audit work papers and co-audit standards.  In June 2020, the Nasdaq Stock Market filed a proposed rule change to amend IM-5101-1, the rule which allows Nasdaq to use its discretionary authority to deny listing or continued listing to a company. The proposed rule change will add discretionary authority to deny listing or continued listing or to apply additional or more stringent criteria to an applicant based on considerations surrounding a company’s auditor or when a company’s business is principally administered in a jurisdiction that is a “restrictive market” (see HERE).

Bolstering Nasdaq’s position, the Division of Trading and Markets and the Office of the Chief Accountant are considering jointly recommending (i) amendments to Rule 2-01(a) of Regulation S-X to provide that only U.S. registered public accounting firms will be recognized by the SEC as a qualified auditor of an issuer incorporated or domiciled in non-cooperating jurisdictions for purposes of the federal securities laws, and (ii) rule amendments to enhance listing standards of U.S. national securities exchanges to prohibit the initial and continued listing of issuers that fail to timely file with the SEC all required reports and other documents, or file a report or document with a material deficiency, which includes financial statements not prepared by a U.S. registered public accounting firm recognized by the SEC as a qualified auditor.

Fourteen items are included in the final rule stage, down from 21 on the Spring Agenda, including a few of which are new to the Agenda.  Proposed rules to the Investment Advisors Act of 1940 regarding investment adviser advertisements and compensation for solicitation were added to the list appearing in the final rule stage. Although an amendment to the definition for covered clearing agency was adopted in April 2020, a further amendment to the definition related to security-based swaps dealers now appear in the final rule stage.  Moved from proposed to final are amendments to the rules regarding the consolidated audit trail.

Still listed in the final rule stage is universal proxy process.  Originally proposed in October 2016 (see HERE), the universal proxy is a proxy voting method meant to simplify the proxy process in a contested election and increase, as much as possible, the voting flexibility that is currently only afforded to shareholders who attend the meeting. Shareholders attending a meeting can select a director regardless of the slate the director’s name comes from, either the company’s or activist’s. The universal proxy card gives shareholders, who vote by proxy, the same flexibility.  The SEC re-opened comments on the rule proposal in April 2021 (see HERE).  Although things can change, final action is currently slated for October 2021.

Also, still in the final rule stage are filing fee processing updates including changes to disclosures and payment methods (proposed rules published in October 2019); use of derivatives by registered investment companies and business development companies; and market data infrastructure, including market data distribution and market access (proposed rules published in February 2020); and amendments to the SEC’s Rules of Practice.  Administration of the EDGAR system moved up from long-term to the final rule stage.

Still listed on the final rule stage is the harmonization of exempt offerings.  The SEC adopted final amendments updating the exempt offering rules and processes on November 2, 2020.  I published a five-part blog on the series, including related to integration (HERE); offering communications (HERE); amendments to Rule 504, Rule 506(b) and 506(c) of Regulation D (HERE); Regulation A (HERE); and Regulation CF (HERE ).  Likewise is the disclosure of payments by resource extraction issuers (proposed rules published in December 2019 – see HERE).  However, final rules were adopted in December 2020.

Keeping with that trend, modernization and simplification of disclosures regarding MD&A, selected financial data and supplementary financial information remain on the final rule list.  Those amendments were adopted in November 2020 (HERE).  Further valuation practices and the role of the board of directors with respect to the fair value of the investments of a registered investment company or business development company remain on the final rule list although changes were enacted in December 2020.  Amendments to certain provisions of the auditor independence rules which were adopted in October 2020 still appear on the list (see HERE).  As noted at the beginning, the Agenda is current through October 2020.

Several items have dropped off the Agenda as they have now been implemented and completed, including some major overhauls such as: the modernization and simplification of disclosures regarding the description of business, legal proceedings and risk factors which were adopted in August 2020 (see HERE); financial statements and other disclosure requirements related to the acquisitions and dispositions of businesses which was finalized in May 2020 (see HERE); amendments to the rules governing proxy advisory firms (see HERE); amend the rules regarding the thresholds for shareholder proxy proposals under Rule 14a-8 (see HERE); amendments to the definition of accredited investor (HERE ); and the revamping of the 15c2-11 rules and process (see HERE).

Other items that dropped off the list as rulemaking was completed include procedures for investment company act applications; NMS Plan amendments; disclosure requirements for banking and savings and loan registrants, including statistical and other data; prohibitions and restrictions on proprietary trading and certain interests in, and relationships with, hedge funds and private equity funds; fund of fund arrangements; customer margin requirements for securities futures; and amendments to the whistleblower program.

Thirty-two items are listed as long-term actions (up from 30 in Spring 2020), including many that have been sitting on the list for years, including implementation of Dodd-Frank’s pay for performance (see HERE) which has sat on the long-term list for several years now.

Earnings releases and quarterly reports were on the fall 2018 pre-rule list, moved to long-term on the Spring 2019 list and up to proposed in Fall 2019 and Spring 2020.  The topic has now been dropped down again to the long-term list.  The SEC solicited comments on the subject in December 2018 (see HERE), but has yet to publish proposed rule changes and is clearly not making this topic a top priority.  Clawbacks of incentive compensation at financial institutions which had previously been dropped are back on as a long-term plan.

Amendments to the custody rules for investment advisors moved from the proposed rule stage to long-term actions, as did amendments to Form 13F filer thresholds. Amendments to the 13F filer thresholds were proposed in July 2020, increasing the threshold for the first time in 45 years.  Surprisingly, the proposal was met with overwhelming pushback from market participants.  There were 2,238 comment letters opposing the change and only 24 in support.  Although the SEC continues to recognize that the threshold is outdated, it seems to be focusing on other more pressing matters.

Also bouncing back to long-term after spending one semi-annual period on the proposed rule list are 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.

Still on the long-term action list is custody rules for investment companies; asset-backed securities disclosures (last amended in 2014); conflict minerals amendments; corporate board diversity (although nothing has been proposed, it is a hot topic); Regulation AB amendments; reporting on proxy votes on executive compensation (i.e., say-on-pay – see HERE); stress testing for large asset managers; the modernization of investment company disclosures, including fee disclosures; and prohibitions of conflicts of interest relating to certain securitizations.

Executive compensation clawback (see HERE) which had been on the proposed rule list in Spring 2020 is back as a long-term action.  Clawback rules would implement Section 954 of the Dodd-Frank Act and require that national securities exchanges require disclosure of policies regarding and mandating clawback of compensation under certain circumstances as a listing qualification.

Also still on the long-term action list are removal of certain references to credit ratings under the Securities Exchange Act of 1934; definitions of mortgage-related security and small-business-related security; broker-dealer liquidity stress testing, early warning, and account transfer requirements; requests for comments on fund names; additional changes to exchange-traded products; amendments to Rules 17a-25 and 13h-1 following creation of the consolidated audit trail (part of Regulation NMS reform); amendments to improve fund proxy systems; short sale disclosure reforms; credit rating agencies’ conflicts of interest; amendments to requirements for filer validation and access to the EDGAR filing system and simplification of EDGAR filings; and electronic filing of Form 1 by a prospective national securities exchange and amendments to Form 1 by national securities exchanges; and Form 19b-4(e) by SROs that list and trade new derivative securities products.

Several swap-based rules remain on the long-term list including 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.

New to the list are money market fund reforms; amendments to municipal securities exemption reports; and amendment to reports of the Municipal Securities Rulemaking Board.

Sadly, completely dropped from the Agenda is Regulation Finders.  Although the SEC proposed a conditional exemption for finders (see HERE) it does not go far enough, and again is not a priority.

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 siting 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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