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SEC Spring 2021 Regulatory Agenda

The first version of the SEC’s semiannual regulatory agenda and plans for rulemaking under the current administration has been published in the federal register.  The Spring 2021 Agenda (“Agenda”) is current through April 2021 and contains many notable pivots from the previous SEC regime’s focus.  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.

The 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 jumped up to 45 items since Fall, which had only 32 items.  Some of the new items are a revisit of previously passed rule changes.  Although a big jump from Fall 2020, 45 is in line with prior years.  The Spring 2019 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.

Four items appear in the pre-rule stage including prohibition against fraud, manipulation, and deception in connection with security-based swaps which was also on the Fall Agenda.  Added to the list are exempt offerings, third-party service providers and gamification.    Third-party service providers refer to the asset management industry and includes services such as index and model providers.  Under the gamification category, the SEC is considering seeking public comment on potential rules gamification, behavioral prompts, predictive analytics, and differential marketing.  Gary Gensler talked about gamification issues in a recent speech – see HERE

Interestingly, the SEC 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).

The Agenda indicates that the SEC is now planning on seeking public comment on ways to further updated the SEC rules for exempt offerings “to more effectively promote investor protection, including updating the financial thresholds in the accredited investor definition, ensuring appropriate access to and enhancing information available regarding Regulation D offerings, and amendments related to the integration framework for registered and exempt offerings.”  All of these were points of contention during the rule amendment process.  Also in August 2020, the SEC updated the definition of an accredited investor and specifically decided not to increase the financial thresholds (see HERE).  Seems we could be going back to the beginning in this whole process.  As a practitioner I am frustrated by the idea that the SEC’s rulemaking could be so partisan-driven.  Historically, that was not the case.  Certainly, we have seen a different focus with new administrations but not a seesaw of rulemaking.

Thirty-six items are included in the proposed rule stage, up from just 16 on the Fall 2020 list, and include plenty of brand-new interesting topics.  New to the proposed rule list are ESG related items including climate change and human capital disclosure.  In addition to many public announcements on the topic of climate change, in March, the SEC issued a statement requesting public input on climate change disclosure with a focus on enhancing and updating the prior 2010 guidance (see HERE), it is now considering rule amendments to further enhance the disclosure requirements. Further proposed items in the ESG category are rules related to investment companies and investments advisors addressing environmental, social and governance factors.

Also new to the list is special purpose acquisition companies (SPACs) which could include a plethora of potential rule changes such as specific exclusion from the protections of Private Securities Litigation Reform Act (PSLRA), enhanced disclosure requirements, amendments to Exchange listing requirements and changes to accounting treatment, among others (see HERE).  Rule 10b5-1 and in particular, a review of affirmative defenses available for insider trading cases, has been added to the proposed rule list.  This is a topic Gary Gensler and the current SEC top brass have been vocal about in public speeches.  Similarly, potential changes to Section 10 liability provisions surrounding loans or the borrowing of securities now appear on the proposed rule list.

Another hot topic amongst the SEC and marketplace has been share repurchase programs by public companies, including the potential they unfairly benefit insiders selling into the upmarket created by the repurchase programs.  Share repurchase disclosure modernization has been added to the proposed rule list. Likewise, market structure reform including related to payment for order flow, best execution and market concentration are new to the Agenda in the proposed rule category.  Gary Gensler gave a heads-up that this was a priority in his May 6, 2021 speech to the House Financial Services Committee (see HERE).  Keeping in the market structure category, the SEC is considering amending the rules to shorten the standard settlement cycle.  The historical t+3 was shortened to t+2 back in March 2017 (see HERE) and many believe that technology can currently handle t+1 with a goal of reaching simultaneous settlement (t+0).

Rounding out new items on the Agenda appearing on the proposed rule list include disclosure regarding beneficial ownership of swaps including interests in security-based swaps; cybersecurity risk governance which could enhance company disclosure requirements regarding cybersecurity risk; electronic submission of applicators for orders under the Advisors Act, confidential treatment requests for filings on Form 13F, and ADV-NR; open-end fund liquidity and dilution management; incentive-based compensation arrangements at certain financial institutions that have $1 billion or more in total assets; and portfolio margining of uncleared swaps and non-cleared security-based swaps.

Many items remain on the proposed list including mandated electronic filings increasing the number of filings that are required to be made electronically; potential amendment to Form PF, the form on which advisers to private funds report certain information about private funds to the SEC; electronic filing of broker-dealer annual reports, financial information sent to customers, and risk-assessment reports; and records to be preserved by certain exchange members, brokers and dealers.

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).

Another controversial item still 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.

It is not just the pre-rule stage that reflects a re-do of recently enacted rules.  The disclosure of payments by resource extraction issuers (proposed rules published in December 2019 – see HERE and finalized in December 2020 (see HERE) is now on the proposed rule list to determine if additional amendments might be appropriate.  Keeping with a seeming willingness to subject the marketplace to continued regulatory uncertainty, back on the proposed list is amendments to the rules regarding the thresholds for shareholder proxy proposals under Rule 14a-8.  After years of discussion and debate, the SEC adopted much-needed rule changes in September 2020 (see HERE) which are now apparently back on the table. The complete proxy advisory rule changes (see HERE) are also back in play on the proposed rule list.  Finally, amendments to the whistleblower program which had dropped off the list as completed, are now back on for further review.

Several items have moved from long term actions to the proposed rule stage.  Executive compensation clawback (see HERE), which had been on the proposed rule list in Spring 2020 and then moved to long-term action, is back on the proposed list.  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.  This topic has been batting around since 2015.  Also, clawbacks of incentive compensation at financial institutions moved from long-term to proposed.

Also moved up from long-term action to proposed is corporate board diversity (although nothing has been proposed, it is a hot topic); reporting on proxy votes on executive compensation (i.e., say-on-pay – see HERE); amendments to the custody rules for investment advisors (which was moved from proposed to long term and now back to proposed); money market fund reforms; registration and regulation of security-based swap execution facilities; prohibitions of conflicts of interest relating to certain securitizations; broker-dealer liquidity stress testing, early warning, and account transfer requirements; 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 short sale disclosure reforms.

Bouncing back to the proposed list from the long-term list in Fall 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.

Nine items are included in the final rule stage, down from 14 on the Fall Agenda, none of which are new to the Agenda.  Implementation of Dodd-Frank’s pay for performance jumped from the long-term list where it had sat for years, to the final rule stage (see HERE).  Establishing the form and manner with which security-based swap data repositories must make security-based swap data available to the SEC also jumped from a long-term action item to the proposed rule list. Likewise, amendments to the NMS Plan for the consolidated audit trail data security have been added.

Investment company summary shareholder report and modernization of certain investment company disclosures moved from the proposed to final rule stage, as did amendments to Regulation ATS for the registration of and reporting by alternative trading systems (ATS) for government securities.

Moving quickly from the proposed rule stage to final 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.  For more on my thoughts on the damage this change can cause, see HERE.

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); and an amendment to the definition of clearing agency for certain activities of security-based swaps dealers.

Seventeen items are listed as long-term actions, down from the 32 that were on the Fall list, including many that have been sitting on the list for years and one that is new.  Although the already implemented amendments to the proxy process and rules are under new review as discussed above, additional proxy process amendments dropped from the proposed list to a long-term action item. New to the list in long-term action is investment company securities lending arrangements.

Continuing their tenure on the long-term list is conflict minerals amendments; stress testing for large asset managers; custody rules for investment companies; requests for comments on fund names; amendments to improve fund proxy systems; end user exception to mandatory clearing of security-based swaps; removal of certain references to credit ratings under the Securities Exchange Act of 1934; definitions of mortgage-related security and small-business-related security; 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); credit rating agencies’ conflicts of interest; amendments to requirements for filer validation and access to the EDGAR filing system and simplification of EDGAR filings; amendments to municipal securities exemption reports; and amendment to reports of the Municipal Securities Rulemaking Board.

Several items have dropped off the Agenda as they have now been implemented and completed, including amendments to the Investment Advisors Act of 1940 regarding investment adviser advertisements and compensation for solicitation; use of derivatives by registered investment companies and business development companies; market data infrastructure, including market data distribution and market access; and amendments to the SEC’s Rules of Practice.

Moved from the proposed rule stage to a long-term action item are proposed changes 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).  In May 2018, SEC 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.  This no longer seems to be a priority.

Dropped from the Agenda are 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.

Other items dropped from the Agenda without action include amendments to asset-backed securities disclosures (last amended in 2014); 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 back down to long-term in Fall 2020 and now has been dropped altogether.  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.

Also dropped without action is amendments to Guide 5 on real estate offerings and Form S-11 (though some changes were made in relation to the acquisition of businesses by blind pools); and amendments to the family office rule (though I expect this will be partly covered by the item on the proposed list related to disclosure regarding beneficial ownership of swaps including interests in security-based swaps).

Disappointingly still not on 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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