NASDAQ Amends Rules For Waivers To Code Of Conduct

On September 5, 2023, Nasdaq adopted amendments to Listing Rule 5610 and IM-5610 requiring listed companies to maintain a code of conduct and to disclose certain waivers.  This is also a good time to discuss the code of conduct/code of ethics requirements applicable to all companies subject to the Securities Exchange Act of 1934 (“Exchange Act”) reporting requirements.

Code of Conduct/Code of Ethics

Section 406(c) of the Sarbanes-Oxley Act of 2002 (“SOX”) requires all companies that are subject to the Exchange Act reporting requirements to disclose whether they have adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.  If the company has not adopted such a code, it must explain why it has not done so.

SOX defines a code of ethics as written standards reasonably designed to deter wrongdoing and to promote: (i) honest and ethical conduct including related to conflicts of

SEC Publishes New C&DI On Rule 10b5-1

On August 25, 2023, the SEC published five new Compliance and Disclosure Interpretations (C&DI) on the recently effective Rule 10b5-1 amendments.  The new rules were adopted on December 14, 2022 (see HERE) to enhance disclosure requirements and investor protections against insider trading.  The amendments include updates to Rule 10b5-1(c)(1), which provides an affirmative defense to insider trading liability under Section 10(b) and Rule 10b-5. This is the second time the SEC has published guidance on the rules having issued three C&DI in May – see HERE.

The rule amendments updated the conditions to satisfy the 10b5-1 affirmative defense, including adding cooling-off periods before trading can commence under a Rule 10b5-1 plan and a condition that all persons entering into a Rule 10b5-1 plan must act in good faith with respect to the plan. The amendments also require directors and officers to include representations in their plans certifying at the time of the adoption of

Regulation FD

In addition to the rules and regulations governing the numerous mandatory disclosure obligations under the federal securities laws, the SEC also has several rules governing a company’s obligations vis-a-vis voluntary disclosures.  I have written several times about the use of non-GAAP financial measures (see HERE and the imbedded links therein), but it has been several years (10!) since I wrote about the rules and regulations that form a part of Regulation Fair Disclosure (“Regulation FD”).

Regulation FD, comprised of Exchange Act Rules 100-103, was first adopted in the year 2000 in response to concerns about selective disclosure to certain market participants, including a practice of having private calls with analysts, institutional shareholders and traders.  Regulation FD requires a company to make public disclosure in advance of an intentional disclosure of material non-public information or immediately following an inadvertent disclosure of such material information.

Regulation FD Rules

Exchange Act Rule 100 mandates that whenever a company or any person acting

Furnish VS. Filed

Over the years I’ve noted that information required pursuant to various disclosure obligations, or new or amended rules, may be “furnished” versus “filed” with the SEC, but I realize in a “let’s get back to basics” moment, I have not yet (until now) provided a detailed explanation of what that means.  In summary, information that is “filed” with the SEC carries Section 18 liability, only “filed” information can be incorporated by reference into other filings, such as an S-3 registration statement, and only “filed” SEC reports affect S-3 eligibility.

Section 18

Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”) imposes liability on any person that makes or causes to be made any statement in any application, report or document “filed” pursuant to the Exchange Act or any rule thereunder which statement was at the time and in the light of the circumstances under which it was made false or misleading with

SEC Publishes Guidance On Rule 10b5-1 Amendments

On May 25, 2023, the SEC published three new Compliance and Disclosure Interpretations (C&DI) on the recently effective Rule 10b5-1 amendments.  The new rules were adopted on December 14, 2022 (see HERE) to enhance disclosure requirements and investor protections against insider trading.  The amendments include updates to Rule 10b5-1(c)(1), which provides an affirmative defense to insider trading liability under Section 10(b) and Rule 10b-5.

The changes updated the conditions that must be met for the 10b5-1 affirmative defense, including adding cooling-off periods before trading can commence under a Rule 10b5-1 plan and a condition that all persons entering into a Rule 10b5-1 plan must act in good faith with respect to the plan. The amendments also require directors and officers to include representations in their plans certifying at the time of the adoption of a new or modified Rule 10b5-1 plan that: (i) they are not aware of any material nonpublic information about the issuer

SEC Adopts Amendments To Rule 10b5-1 Insider Trading Plans

On December 14, 2022, the SEC adopted amendments to Rule 10b5-1 under the Securities Exchange Act of 1934 (“Exchange Act”) to enhance disclosure requirements and investor protections against insider trading.  The amendments include updates to Rule 10b5-1(c)(1), which provides an affirmative defense to insider trading liability under Section 10(b) and Rule 10b-5. The proposed rules were published in HERE.  Although there is a statutory framework, the laws surrounding insider trading are largely based on judicial precedence and are difficult to navigate.  The rule amendments are intended to provide clarity to the marketplace.

Since the adoption of Rule 10b5-1, courts, commentators, and members of Congress have expressed concern that the affirmative defense under Rule 10b5-1(c)(1)(i) has allowed traders to take advantage of the liability protections provided by the rule to opportunistically trade securities on the basis of material nonpublic information. Furthermore, some academic studies of Rule 10b5-1 trading arrangements have shown that corporate insiders trading pursuant to

NASDAQ Issues Report Advocating for The U.S. Public Markets

Before SEC Commissioner Michael Piwowar’s May 16, 2017, speech at the SEC-NYU Dialogue on Securities Market Regulation regarding the U.S. IPO Market (see summary HERE), and SEC Chair Jay Clayton’s July 12, 2017, speech to the Economic Club of New York (see summary HERE), the topic of the U.S. IPO market had already gained significant market attention. Earlier this year, NASDAQ issued a paper titled “The Promise of Market Reform: Reigniting American’s Economic Engine” with its views and position on how to revitalize the U.S. equities and IPO market (the “NASDAQ Paper”). This blog summarizes the NASDAQ Paper.

The NASDAQ Paper begins with a statement by Adena Friedman, President and CEO of NASDAQ. The statement begins with a decidedly positive outlook, noting that “The U.S. equities markets exist to facilitate job creation and wealth creation for millions of people, ultimately driving economic growth for our country.” Ms. Friedman adds that “[E]xceptional market returns in recent years

Confidentially Marketed Public Offerings (CMPO)

Not surprisingly, I read the trades including all the basics, the Wall Street Journal, Bloomberg, The Street, The PIPEs Report, etc.  A few years ago I started seeing the term “confidentially marketed public offerings” or “CMPO” on a regular basis.  The weekly PIPEs Report breaks down offerings using a variety of metrics and in the past few years, the weekly number of completed CMPOs has grown in significance.  CMPOs count for billions of dollars in capital raised each year.

CMPO Defined

A CMPO is a type of shelf offering registered on a Form S-3 that involves speedy takedowns when market opportunities present themselves (for example, on heavy volume).  A CMPO is very flexible as each takedown is on negotiated terms with the particular investor or investor group.  In particular, an effective S-3 shelf registration statement allows for takedowns at a discount to market price and other flexibility in the parameters of the offering such

SEC Issues Concept Release On Regulation S-K; Part 2

On April 15, 2016, the SEC issued a 341-page concept release and request for public comment on sweeping changes to certain business and financial disclosure requirements in Regulation S-K (“S-K Concept Release”).  This blog is the second part discussing that concept release.  In Part I, which can be read HERE, I discussed the background and general concepts for which the SEC provides discussion and seeks comment.  In this Part II, I will discuss the rules and recommendations made by the SEC and, in particular, those related to the 100, 200, 300, 500 and 700 series of Regulation S-K.

Background

The fundamental tenet of the federal securities laws is defined by one word: disclosure.  In fact, the SEC neither reviews nor opines on the merits of any company or transaction, but only upon the appropriate disclosure, including risks, made by that company.  However, excessive rote immaterial disclosure can dilute the material important information regarding that particular company and have the

Responding To SEC Comments

Background

The SEC Division of Corporation Finance (CorpFin) reviews and comments upon filings made under the Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”). The purpose of a review by CorpFin is to ensure compliance with the disclosure requirements under the federal securities laws, including Regulation S-K and Regulation S-X, and to enhance such disclosures as to each particular issuer. CorpFin will also be cognizant of the anti-fraud provisions of the federal securities laws and may refer a matter to the Division of Enforcement where material concerns arise over the adequacy and accuracy of reported information or other securities law violations, including violations of the Section 5 registration requirements. CorpFin has an Office of Enforcement Liason in that regard.

CorpFin’s review and responsibilities can be described with one word: disclosure!

CorpFin selectively reviews filings, although generally all first-time filings, such as an S-1 for an initial public offering or Form 10 registration under