On June 22, 2022, the SEC published its semiannual regulatory agenda and plans for rulemaking. The Unified Agenda of Regulatory and Deregulatory Actions contains the Regulatory Plans of 28 federal agencies and 68 federal agency regulatory agendas. As expected, the Spring 2022 Agenda (“Agenda”) met with criticism from Commissioner Hester M. Peirce. Commissioner Peirce rips the newest Agenda as being disconnected with the SEC’s core mission and as being focused on special interest groups instead of a broad range of market participants. I’ll include her comments throughout this blog. 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 is 53, close to the 52 items that were on prior Agenda (but much higher than the average 32 items under the Jay Clayton SEC). Many of the new items are a revisit of previously passed rule changes.
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. As a perfect example, amendments to the custody rules for investment advisors is back on the proposed list. The amendments moved from proposed to long-term back to proposed, and back to long-term and are now back as proposed! For the first time in the many years I have been reviewing the Agenda, there are no items listed in the pre-rule stage. This could just be that the preparer lumped all pre-rule items into long-term actions.
Twenty-seven action items are included in the proposed rule stage, way down from the 47 on the Fall 2021 list. The list includes some brand-new topics as well as several from the Fall list. Still on the proposed rule list are changes to Regulation D and Form D, including updating the financial thresholds in the accredited investor definition and “improving protections for investors.” I note that in August 2020, the SEC updated the definition of an accredited investor and specifically decided not to increase the financial thresholds (see HERE)
The proposed list for Fall 2021 including exempt offering changes which now seems to be grouped with the Regulation D changes. The SEC adopted final amendments updating the exempt offering rules and processes on November 2, 2020, and it appears further changes are on the way. 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).
Special purpose acquisition companies (SPACs) remain on the proposed list. On March 30, 2022, the SEC proposed rules enhancing disclosure requirements associated with SPAC initial public offerings (IPOs) and de-SPAC merger transactions; requiring that a private operating company be a co-registrant when a SPAC files an S-4 or F-4 registration statement associated with a business combination; requiring a re-determination of smaller reporting company status within four days following the consummation of a de-SPAC transaction; amending the definition of a “blank check company” to make the liability safe harbor in the Private Securities Litigation Reform Act of 1995 for forward-looking statement such as projections, unavailable in filings by SPACs and other blank check companies; and deeming underwriters in a SPAC IPO to be underwriters in a de-SPAC transaction when certain conditions are met. I wrote a six-part in-depth review of the proposed rules which can be read here – Part 1- HERE; Part 2 – HERE ; Part 3 – HERE ; Part 4 – HERE ; Part 5 – HERE ; and Part 6 – HERE.
Still 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. 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.
Although it remains on the proposed list, it is possible a rule change will lag, or at least that is my hopeful thinking. On June 3, 2022, the SEC adopted amendments to the EDGAR filing rules, including requiring the electronic filing of Form 144, which was included in the December 2020 proposed rule release. The SEC has said that they “are not taking any action concerning the remaining proposals in the Rule 144 Proposing Release at this time.”
Also still on the proposed list are several items in the ESG category, including corporate board diversity and human capital disclosure. Although the SEC enhanced human capital disclosure requirements as part of recent Item 101 of Regulation S-K (description of business) disclosures (see HERE), it is now considering rule amendments to further enhance the disclosure requirements. Corporate board diversity is a hot topic and Nasdaq adopted its own board diversity rules in August 2021 – see HERE). Other proposed items in the ESG category are rules related to investment companies and investments advisors addressing environmental, social and governance factors.
Maintaining a 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 back on the table. Not waiting for rule changes, the SEC issued new guidance on the topic which wiped out the three prior published guidance bulletins – see HERE. New rules were proposed on July 13, 2022, and will be the subject of an upcoming blog.
Keeping with the redo trend, the disclosure of payments by resource extraction issuers (proposed rules published in December 2019 – see HERE and finalized in December 2020 (see HERE) is on the proposed rule list to determine if additional amendments might be appropriate.
It 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.
Revisions to the definition of securities held of record also remains on the proposed list. Any proposal would relate to the definition for purposes of Section 12(g) of the Exchange Act. For a review of the current rule, see HERE. Other items remaining on the proposed list include amendments to the fund names rule; open-end fund liquidity and dilution management; amendment to Form PF, the form on which advisers to private funds report certain information aboHEREut private funds to the SEC (amendments proposed on January 26, 2022); rules addressing conflicts of interest for clearing agencies of security-based swaps; prohibitions of conflicts of interest relating to certain securitizations; additional changes to exchange-traded products; expanding clearing of government securities; and registration and regulation of security-based swap execution facilities.
The electronic filing of broker-dealer annual reports, financial information sent to customers, and risk-assessment reports and the electronic filing by clearing agencies and security-based swap entities remain on the proposed list. I note that the various electronic filing requirements were separated out on the Spring Agenda and grouped on this new Agenda, which explains some of reason for the decreased number of total items on the proposed list.
Continuing on the proposed list is equity market structure reform, including related to payment for order flow, order routing, conflicts of interest, best execution, market concentration, and the disclosure of best execution statistics. 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).
Third-party service providers moved from the pre-rule stage to the proposed stage. Third-party service providers refer to the asset management industry and includes services, such as index and model providers.
Back on the proposed list after moving from the pre-rule stage to a long-term action item is digital engagement practices for broker-dealers and investment advisors – i.e., gamification. 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.
New to the Agenda and appearing on the proposed list are fund fee disclosure and reform for registered investment companies. Also new to the list are amendments to Regulation ATS to modernize the conditions to the ATS exemption for all ATSs. This includes considering recommending that the Commission propose requirements to promote pre-trade price transparency across asset classes. Finally, amendments to Rule 15b9-1 to narrow the availability of the FINRA membership exemption for broker-dealer exchange members that trade proprietarily elsewhere other than on an exchange of which they are a member have been added to the Agenda as a proposed item.
Also new is cybersecurity risk governance, including potential amendments to Regulation S-P and Regulation SCI for broker-dealers and other registered market participants. For more on Regulation SCI, see HERE.
In what I think is a record, twenty-six items are included in the final rule stage, up from just five in the Fall 2021 Agenda. Gary Gensler’s SEC is busy indeed.
One of the biggest ticket items appearing on the Agenda in the final rule stage is climate change disclosure. On March 21, 2022, the SEC proposed rules that would require publicly reporting companies to include certain climate-related disclosures in their registration statements and periodic reports. The rules are extremely robust and resulted in my longest blog series to date – eight segments. I will not bore my regular readers with a rehash – but the entire series can be read here – Part 1 – HERE; Part 2 – HERE; Part 3 – HERE; Part 4 – HERE; Part 5 – HERE; Part 6 – HERE; Part 7 – HERE; and Part 8 – HERE.
Executive compensation clawback (see HERE), which had been on the proposed rule list in Spring 2020, then moved to long-term action, and then back to proposed in Spring and Fall 2021, has finally reached the final rule stage (pun intended). 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.
Likewise, implementation of Dodd-Frank’s pay for performance, which had jumped from the long-term list where it had sat for years to the final rule stage in Spring 2021 then pushed down to proposed rule stage in Fall 2021 has reaching the final rule stage (see HERE). On January 27, 2022, The SEC re-opened the comment period on this revitalized rule.
Dodd-Frank is not the only area that has seen movement to the final rule stage. Others include mandated electronic filings increasing the number of filings that are required to be made electronically; Rule 10b5-1 and in particular, a review of affirmative defenses available for insider trading cases (see HERE); and cybersecurity risk governance which could enhance company disclosure requirements regarding cybersecurity risk. Cybersecurity actually appears three times on the Agenda, twice in the final stage, with the second related to rules to enhance fund and investment adviser disclosures and governance relating to cybersecurity risks.
The complete proxy advisory rule changes (see HERE) are also back in play new rules adopted July 13, 2022. The new rules will undo the recent rule change, including removing conditions to the availability of certain exemptions from the information and filing requirements of the federal proxy rules for proxy voting advice businesses; amending the proxy rules’ antifraud provision to remove examples of situations in which the failure to disclose certain information in proxy voting advice may be considered misleading within the meaning of the federal proxy rules’ prohibition on material misstatements or omissions; and documenting the SEC’s view regarding the application of that prohibition to proxy voting advice, in particular with respect to statements of opinion. Similarly, in the final rule stage is enhanced reporting of proxy votes by registered management investment companies and reporting on executive compensation votes by institutional investment managers.
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 was added to the proposed list in Spring 2021, where it remained in Fall 2021 and now has moved to the final rule stage. The SEC proposed rules on the topic in December 2021 – see HERE.
Brand-new on the Agenda and appearing in the final rule stage are amendments to beneficial ownership reporting under Section 13. Proposed rules were published in March and are on my lengthy list to blog about. The Agenda indicates that the SEC is considering recommending that it adopt rule amendments to modernize the beneficial ownership reporting obligations. The SEC proposed amendments would accelerate the filing deadlines for initial and amended beneficial ownership reports filed on Schedules 13D and 13G. The proposed amendments would also deem holders of certain cash-settled derivative securities as beneficial owners of the reference equity securities and clarify the disclosure requirements of Schedule 13D with respect to derivative securities. In addition, the proposed amendments would clarify and affirm the operation of the beneficial ownership reporting rules as applied to two or more persons that form a group under the Securities Exchange Act of 1934, and provide new exemptions to permit such persons to communicate with each other, jointly engage issuers, and execute certain transactions without being subject to regulation as a group.
Also moving up from the proposed list to the final rule stage are amendments to Form PF to require current reporting and amending the reporting requirements for large private equity advisers and large liquidity fund advisers; money market fund reforms; electronic submission of applicators for orders under the Advisors Act, confidential treatment requests for filings on Form 13F, and ADV-NR; broker-dealer liquidity stress testing, early warning, and account transfer requirements; potential rule changes to the Advisors Act to address lack of transparency, conflicts of interest, and certain other matters involving private fund advisers; prohibition against fraud, manipulation, and deception in connections with security-based swaps and disclosure of security-based swap positions; removal of references to credit ratings from Regulation M; short sale disclosure reforms; amendments to the whistleblower program; and electronic recordkeeping requirements for broker-dealers and security-based swap dealers and major security-based swap participants.
Also moved from proposed to the final stage are amendments to 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).
Further amendments to the definition of dealers are in the final rule stage. This is obviously a statutory response to the current plethora of dealer litigation actions against convertible note lenders. Proposed rules were published in March 2022 and are on my blog list.
Shuffling around, amendments to Regulation ATS for the registration of and reporting by alternative trading systems (ATS) for government securities is back on the final rule list after having dropped from to proposed rule stage. Proposed rules were published in January 2022. Included in this category are also amendments to Exchange Act Rule 3b-16 regarding the definition of “Exchange.”
Moving from a long-term action item to the final rule stage is company securities lending arrangements. This rule would implement Section 984(b) of the Dodd-Frank Act. Section 984 of the Dodd-Frank Act provides the SEC with the authority to increase transparency with respect to the loan or borrowing of securities. The SEC proposed a rule to increase the transparency and efficiency of the securities lending market by requiring any person that loans a security on behalf of itself or another person to report the material terms of those securities lending transactions and related information regarding the securities the person has on loan and available to loan to a registered national securities association (“RNSA”). The proposed rule would also require that the RNSA make available to the public certain information concerning each transaction and aggregate information on securities on loan and available to loan.
Remaining on the final rules list is tailored shareholder reports, treatment of annual prospectus updates for existing investors, and improved fee and risk disclosure for mutual funds and ETFs as well as fee information in Investment Company ads is new and on the final rule list. Amendments to the NMS Plan for the consolidated audit trail data security remain in the final rule stage.
Only eight items are listed as long-term actions, down from eighteen on the Fall 2021 list. Continuing their tenure on the long-term action list is conflict minerals amendments; additional proxy process amendments; amendments to Rules 17a-25 and 13h-1 following creation of the consolidated audit trail (part of Regulation NMS reform); portfolio margining of uncleared swaps and non-cleared security-based swaps; amendments to requirements for filer validation and access to the EDGAR filing system and simplification of EDGAR filings; and credit rating agencies’ conflicts of interest and transparency.
Dropping from proposed to a long-term action item is clawbacks of incentive-based compensation arrangements at certain financial institutions that have $1 billion or more in total assets. Amendments to the transfer agent rules also dropped to long-term. 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).
Per usual, several items fell off the list, some worth noting and others not that interesting. Further amendments to exempt offerings including Rule 701 and the integration rules disappeared. In 2018 the SEC amended Rule 701 and issued a concept release seeking comment on potential further proposals (see HERE and HERE). Potential amendments to the reporting on proxy votes on executive compensation (i.e., say-on-pay – see HERE) are also no longer on this Agenda.
Some items dropped from the list as rulemaking has been completed. For example, the Holding Foreign Companies Accountable Act and associated enhanced listing standards have now been implemented. For more on the Act, see HERE.
Likewise off the list is the 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 activists. 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 and finalized rules in November 2021 (see HERE).
Dropped from the Agenda in Spring 2021 and still missing are amendments to Form 13F filer thresholds, though Gary Gensler has hinted that this remains an upcoming priority. 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 either in Spring or Fall 2021 and still not listed include amendments to asset-backed securities disclosures (last amended in 2014); and earnings releases and quarterly reports. 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.
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
LAnthony@AnthonyPLLC.com
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.
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