On June 13, 2023, the SEC published its semiannual Spring 2023 regulatory agenda (“Agenda”) and plans for rulemaking. The Agenda is published twice a year, and for several years I have blogged about each publication. Although items on the Agenda can move from one category to the next, be dropped off altogether, or new items pop up in any of the categories (including the final rule stage), the Agenda provides valuable insight into the SEC’s plans and the influence that comments can make on the rulemaking process.
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 55, which is in-line with the average items under Gary Gensler’s regime (and much higher than Jay Clayton’s average of 32).
Eighteen items are included in the proposed rule stage, down from the 23 on the Fall 2022 list. The list includes some brand-new topics as well as several from the Fall list. Still on the proposed list are amendments to requirements for filer validation and access to the EDGAR filing system and simplification of EDGAR filings. Revisions to the definition of securities held of record also remain 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.
Moving from long-term actions to the proposed list is incentive-based compensation arrangements related to financial institutions with $1 billion or more in total assets. Other items remaining on the proposed rule list include fund fee disclosure and reform for registered investment companies (which was new to the Agenda in Spring 2022); exchange-traded products (which has been on the list for years); and amendments to Regulation ATS to modernize the conditions to the ATS exemption for all ATSs; clearing agency recovery and wind-down (which was new on the last agenda).
Still 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 has been vocal about his concerns with gamification – see, for example HERE.
Still on the proposed list in the ESG category are corporate board diversity and human capital disclosure. Although the SEC enhanced human capital disclosure requirements as part of its Item 101 of Regulation S-K (description of business) amendments, it is considering rule amendments to further enhance the disclosure requirements. For a discussion on the evolving human capital disclosure requirements, see HERE. Corporate board diversity is another hot topic and Nasdaq adopted its own board diversity rules in August 2021 – see HERE) which was recently amended to extend the compliance deadlines – see HERE.
As I have blogged about many times, the SEC is revisiting many rules that were implemented by the prior administration. Keeping with that 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) was moved to the proposed list in Spring 2022 and has remained there since.
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
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).
New to the Agenda and appearing on the proposed list are rules to enable issuers of index-linked annuities to register on a form tailored specifically to registered index-linked annuities; amendments to the exemption for internet advisers from the prohibition against registration under the Investment Advisers Act of 1940; amendments to Rule 15c3-3 (the customer protection rule) to require that certain large broker-dealers compute their customer and PAB reserve deposit requirements daily rather than weekly; and rule changes to address concerns with national securities exchange volume-based transaction pricing in NMS stocks by requiring exchanges to make periodic public disclosures about those pricing models.
Blowing away the previous 29 items in the final rule stage, the newest Agenda has a whopping 37 items. Several items on the final rule list were already adopted prior to the Agenda’s newest publication or will be finalized by October.
One of the biggest ticket items appearing on the Agenda and remaining 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.
Another big-ticket item, special purpose acquisition companies (SPACs), remains in the final rule stage. 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.
Also remaining in final rule stage are amendments to the rules regarding the thresholds for shareholder proxy proposals under Rule 14a-8 which the SEC proposed in July 2022 (see HERE). This topic has been painful for the regulatory system and market participants alike. After years of discussion and debate, the SEC adopted much-needed rule changes in September 2020 (see HERE) but then issued new guidance that wiped out the three prior published guidance bulletins – see HERE.
Remaining in the final rule stage are amendments to beneficial ownership reporting under Section 13 which were proposed in March, 2022 – see HERE. The proposed amendments would accelerate the filing deadlines for Schedules 13D beneficial ownership reports from 10 days to 5 calendar days and require that amendments be filed within one business day; generally accelerate the filing deadlines for Schedule 13G beneficial ownership reports (which differ based on the type of filer); extend the filing deadline to 10:00 p.m. EST; expand the application of Regulation 13D-G to certain derivative securities; clarify the circumstances under which two or more persons have formed a “group” that would be subject to beneficial ownership reporting obligations; provide new exemptions to permit certain persons to communicate and consult with one another, jointly engage issuers, and execute certain transactions without being subject to regulation as a “group”; and require that Schedules 13D and 13G be filed using XBRL.
Also holding steady on the final rule list are amendments to the fund names rule; amendments to Form PF to require current reporting and amending the reporting requirements for large private equity advisers and large liquidity fund advisers and similar amendments for all filers; money market fund reforms; rules to enhance fund and investment adviser disclosures and governance relating to cybersecurity risks; conflicts of interest for clearing agencies of security-based swaps; prohibition against fraud, manipulation, and deception in connections with security-based swaps and disclosure of security-based swap positions; and rules addressing and registration and regulation of security-based swap execution facilities.
Still on the final rule list are rules related to investment companies and investments advisors addressing environmental, social and governance factors; and potential rule changes to the Advisors Act to address lack of transparency, conflicts of interest, and certain other matters involving private fund advisers. Further amendments to the definition of dealers are still in the final rule stage. Proposed rules were published in March 2022 – see HERE.
Likewise, still on the final rule list are removal of references to credit ratings from Regulation M; short sale disclosure reforms; amendments to the NMS Plan for the consolidated audit trail data security; and 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.
Amendments to Regulation ATS for the registration of and reporting by alternative trading systems (ATS) for government securities are still on the final rule list, as are amendments to Exchange Act Rule 3b-16 regarding the definition of “Exchange” which were proposed in April 2023. Remaining on the final rule list is cybersecurity risk governance, which could enhance company disclosure requirements regarding cybersecurity risk. The SEC published the proposals in 2022 (see HERE) but there has been no movement since.
Still in 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.
Moving up from the proposed stage to the final stage are amendments to the Privacy Act (i.e., Freedom of Information Act or “FOIA”) to update and simplify the processes for submitting and receiving responses to Privacy Act inquiries, requests, and administrative appeals. It is unclear if any rule changes would impact confidential treatment requests in SEC filings, which, in turn, relies on the standards in FOIA. See more on confidential treatment here – HERE.
Also moving from the proposed stage to the final stage are prohibitions of conflicts of interest relating to certain securitizations; 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); open-end fund liquidity and dilution management; and the matter of outsourcing by investment advisors and rules related to the oversight of third-party service providers.
Continuing the migration from proposed to the final rule stage are 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; and additional changes to expand the clearing of government securities.
Also moving up from the proposed list to the final rule stage 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).
In a perfect example of how regulatory matters can jump around, moving up from the proposed list to the final rule stage are amendments to the custody rules for investment advisors, which have previously moved from proposed to long-term, back to proposed, back to long-term then on proposed for a full year before now jumping back to the final rule stage.
Brand-new to the list and appearing on the final rule stage is amendments to Regulation S-P that would require brokers and dealers, investment companies and investment advisers registered with the SEC to adopt written policies and procedures for incident response programs to address unauthorized access to or use of customer information, including procedures for providing timely notification to individuals affected by an incident involving sensitive customer information with details about the incident and information designed to help affected individuals respond appropriately.
Likewise new to the list and in the final rule stage are rules related to the disclosure of order execution. The SEC proposed to expand the scope of reporting entities subject to the rule that requires market centers to make available to the public monthly execution quality reports to encompass broker-dealers with a larger number of customers. The SEC also proposed to modify the definition of “covered order” to include certain orders submitted outside of regular trading hours and certain orders submitted with stop prices.
Moving another item onto the list and directly to the final rule state, the SEC is proposing to amend certain rules of Regulation NMS to adopt variable minimum pricing increments for the quoting and trading of NMS stocks, reduce the access fee caps, and enhance the transparency of better-priced orders. I note that many of the final rules in this Agenda relate to order flow, clearing, execution and disclosure by broker-dealers and clearing firms. Similarly, first time on the list and in the final rule stage is rules requiring certain disclosures in connection with security-based swap positions. The rule was previously coupled with other swap-based rules but has been broken out on its own.
Only seven items are listed as long-term actions. 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; and credit rating agencies’ conflicts of interest and transparency.
Amendments to the transfer agent rules also continue on the long-term list. 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. Further amendments to exempt offerings, including Rule 701 and the integration rules, disappeared in Spring 2022 and remain off the list. 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) remain off the priority list.
Laura Anthony, Esq.
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.
Contact Anthony L.G., PLLC. Inquiries of a technical nature are always encouraged.
Listen to our podcast on iTunes Podcast channel.
Lawcast is derived from the term podcast and specifically refers to a series of news segments that explain the technical aspects of corporate finance and securities law. The accepted interpretation of lawcast is most commonly used when referring to LawCast.com, the securities law network. Example: “LawCast expounds on NASDAQ listing requirements.”
Anthony L.G., PLLC makes this general information available for educational purposes only. The information is general in nature and does not constitute legal advice. Furthermore, the use of this information, and the sending or receipt of this information, does not create or constitute an attorney-client relationship between us. Therefore, your communication with us via this information in any form will not be considered as privileged or confidential.
This information is not intended to be advertising, and Anthony L.G., PLLC does not desire to represent anyone desiring representation based upon viewing this information in a jurisdiction where this information fails to comply with all laws and ethical rules of that jurisdiction. This information may only be reproduced in its entirety (without modification) for the individual reader’s personal and/or educational use and must include this notice.
© Anthony L.G., PLLC