SEC

FINRA Approves OTC Markets To Trade Digital Securities

As the SEC continues its onslaught against the crypto industry, including the filing of high-profile actions against Binance, which operates the largest crypto asset trading platform in the world, and Coinbase, a multi-billion-dollar crypto trading platform, FINRA has quietly approved OTC Markets to provide trading services for digital asset securities.

OTC Markets announced the approval in early May but don’t expect any activity in the near future. Concurrent with announcing the approval, OTC Markets CEO, R. Cromwell Coulson, stated:

“We also recently received FINRA approval to permit digital asset securities to be traded by broker-dealers on OTC Link ATS. This approval furthers our mission of operating regulated markets for broker-dealers and issuers of securities. While it will be some time until the regulatory framework and infrastructure develop, we believe our markets are well-positioned to be part of new trading, data, and disclosure solutions for these securities.”

OTC Markets is clearly putting itself in a position to

June 27, 2023

SEC Adopts New Share Repurchase Disclosure Rules

On May 3, 2023, the SEC adopted amendments to Securities Exchange Act Rule 10b-18, which provides issuers and affiliates with a non-exclusive safe harbor from liability for market manipulation under Sections 9(a)(2) and 10(b) and Rule 10b-5 under the Securities Exchange Act of 1934, as amended (“Exchange Act”) when issuers bid for or repurchase their common stock. The proposed rules were part of a broader SEC initiative aimed at market manipulation and insider trading, including the recently adopted amendments related to Rule 10b5-1 Insider Trading Plans (see HERE).

Following publishing the proposed rules, on December 7, 2022, the SEC re-opened the comment period for an additional 30 days after publication in the federal register. The reason for re-opening the comment period was that the Inflation Reduction Act of 2022 added a corporate non-deductible excise tax equal to one percent of the fair market value of any stock of the corporation repurchased by such corporation during the taxable year (see

June 20, 2023

XBRL – Covered Forms

The last time I wrote about XBRL was related to the 2018 adoption of Inline XBRL which is now fully effective for all companies (see HERE). Although I gave an overview of Inline XBRL, that blog did not cover exactly what SEC forms need to be edgarized using XBRL. I’ll cover that now.

XBRL Requirements

XBRL requirements currently apply to operating companies that prepare their financial statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) or in accordance with International Financial Reporting Standards (“IFRS”). Operating companies (as opposed to a new initial public offering) are required to submit financial statements and any applicable financial statement schedules in XBRL with certain Exchange Act reports and Securities Act registration statements. The 2018 adoption of inline XBRL allowed companies to embed XBRL data directly into an HTML document, eliminating the need to tag a copy of the information in a separate XBRL exhibit. Inline XBRL is both human-readable and machine-readable

June 13, 2023

SEC Issues Guidance On New Pay Versus Performance Disclosure Rules

On February 10, 2023, the SEC published 15 new Compliance and Disclosure Interpretations (C&DI) related to the pay versus performance (“Pay vs. Performance”) disclosure rules which were, in turn, adopted in August, 2022 (see HERE) after seven years in the process.

The rules require companies to provide a table disclosing specified executive compensation and financial performance measures for their five most recently completed fiscal years in any proxy or information statement filed under Section 14 of the Exchange Act. With respect to the measures of performance, a company will be required to report its total shareholder return (TSR), the TSR of companies in the company’s peer group, its net income, and a financial performance measure chosen by the company itself. Using the information presented in the table, companies will be required to describe the relationships between the executive compensation actually paid and each of the performance measures, as well as the relationship between the company’s TSR and the

June 6, 2023

SEC To Shorten Settlement Cycle

On February 15, 2023, the SEC adopted final rules shortening the standard settlement cycle from two business days (T+2) to one business day (T+1). A shorter settlement cycle will reduce the credit, market and liquidity risks in securities transactions. The SEC previously shorted the standard cycle from three days (T+3) to T+2 in 2017 (see HERE) and at that time, and in speeches and rule making agendas since then, has consistently indicated efforts to move to T+1.

In addition to shortening the standard settlement cycle, the new rules also shorten the standard settlement cycle for firm commitment offerings priced after 4:30 p.m. from four business days (T+4) to T+2. However, the rules do allow for underwriters and issuers to agree to an alternative settlement date, which is helpful in completing the numerous closing documents and processing steps that occur between the pricing and closing of deals.

The final rules will improve the processing of institutional trades by requiring

May 23, 2023

Nasdaq Amends Pricing Limitations Rules In A Direct Listing

The rules related to direct listings continue to evolve, with the latest Nasdaq rule change being approved on December 2, 2022, although their utilization has been slow to gain traction. Despite the Exchange’s efforts to make the process more attractive and viable, based on a few articles on the subject, only 10 companies had gone public via direct listing as of December 31, 2021, and I could not find a single example of any others since that time. Moreover, and certainly due to the elevated listing standards and arduous process, each of the companies have been much more mature such as Spotify, Slack, Palantir and Coinbase.

In any event, both Nasdaq and the NYSE continue with an “if we build it they will come” approach. After multiple iterations with the SEC, both Nasdaq and the NYSE approved rules that allow a company to raise capital concurrently with a direct listing (see HERE). The very handy Nasdaq Initial Listing Guide

May 16, 2023

Changes To FINRA’S Corporate Action Notification Process

Effective June 3, 2023, FINRA will be replacing and updating the system for filing a Company Related Action Notification form, which form begins the process with FINRA to effectuate a corporate action initiated by a company trading on OTC Markets. The new process allows companies to submit forms, get updates and respond to comments through an electronic FINRA gateway.

Background/Rule 6490

Effective September 27, 2010, the SEC approved FINRA Rule 6490 (Processing of Company Related Actions). Rule 6490 requires that corporations whose securities are trading on the OTC Markets notify FINRA in a timely manner of certain corporate actions, such as dividends, forward or reverse splits, rights or subscription offerings, symbol changes and name changes. The Rule grants FINRA discretionary power when processing documents related to the announcements.

Rule 6490 works in conjunction with Exchange Act Rule 10b-17. Rule 10b-17 states that “it shall constitute a manipulative or deceptive device or contrivance as used in section 10(b) of

May 9, 2023

SEC Issues Additional C&DI On Use Of Non-GAAP Measures

On December 13, 2022, the SEC issued seven new Compliance & Disclosure Interpretations (C&DI) related to the use of non-GAAP financial measures, the first new C&DI on the subject since 2018. Several of the new C&DI update or replace the language of prior existing C&DI. The C&DI cover revenue recognition, misleading information and GAAP reconciliation, in some cases replacing a principles-based response with a more prescriptive approach.

The SEC permits companies to present non-GAAP financial measures in their public disclosures subject to compliance with Regulation G and Item 10(e) of Regulation S-K. Regulation G and Item 10(e) require reconciliation to comparable GAAP numbers, the reasons for presenting the non-GAAP numbers, and govern the presentation format itself including requiring equal or greater prominence to the GAAP financial information.

GAAP continues to be and has consistently been criticized by the marketplace in general, with many institutional investors publicly denouncing the usefulness of the accounting standard. Approximately 90% of companies provide

April 25, 2023

SEC Continues It’s Crypto Focus

In the year and a half since Gary Gensler made it clear to the world that he intends to focus on the crypto “wild west” (see HERE) things have gone from bad to worse for the industry. Of course, it is not all the SEC’s extreme crypto scrutiny that is causing problems, but the very real crypto winter including the collapse of the FTX exchange and its FTX Future Fund, and the realization that the metaverse of tomorrow, will actually not be here until… tomorrow have all added to industry problems. Not to mention a slew of bankruptcy filings (FTX, Blockfi, Celsius and Voyager) and several other precarious financial positions (Blockchain.com, Coinbase, Crypto.com and Genesis, to name a few).

However, putting aside the crypto industry financial crisis, the U.S. regulators, including the SEC, FINRA and national exchanges, are scrutinizing any business with even a modicum of crypto focus to the point where it is almost impossible to move

April 18, 2023

SEC Proposes Revision To The Privacy Act

As anticipated, on February 14, 2023, the SEC proposed revisions to the Privacy Act, governing the handling of personal information in the federal government. The proposed revisions would codify current practices for processing requests for information made by the public under the Privacy Act and would result in an entire re-write of the current rules.

Background

The Privacy Act is the principal law governing the handling of personal information in the federal government regulating the collection, maintenance, use, and dissemination of information about individuals that is maintained in systems of records by federal agencies. The Privacy Act also allows individuals to access information about them and a method to correct inaccurate records.

The SEC is proposing a complete rewrite of the Privacy Act to: (i) add a provision setting forth the process by which individuals may be provided with an accounting of disclosures made by the SEC; (ii) add a provision to codify the existing practice of providing

April 11, 2023

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SEC

FINRA Approves OTC Markets To Trade Digital Securities

XBRL – Covered Forms

SEC Issues Guidance On New Pay Versus Performance Disclosure Rules

SEC To Shorten Settlement Cycle

Nasdaq Amends Pricing Limitations Rules In A Direct Listing

Changes To FINRA’S Corporate Action Notification Process

SEC Issues Additional C&DI On Use Of Non-GAAP Measures

SEC Continues It’s Crypto Focus

SEC Proposes Revision To The Privacy Act

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