SEC Publishes Sample Comment Letter Regarding XBRL Disclosure
Back in June, 2018, the SEC adopted the Inline XBRL requirements (see HERE) and since that time almost all new disclosure rules require either XBRL tagging or Inline XBRL. In December 2022 a new law was passed requiring the SEC to “establish a program to improve the quality of the corporate financial data filed or furnished by issuers under the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”),” causing the SEC to focus even more on XBRL use. As a result, in September 2023, the SEC published a sample letter to companies regarding their XBRL disclosures.
The sample letter consists of six comments, which I have included in full below followed by a short commentary on the point.
- Your filing does not include the required Inline XBRL presentation in accordance with Item 405 of Regulation S-T. Please file an amendment to the filing to include the required Inline XBRL presentation.
SEC Publishes New C&DI On Pay Versus Performance Rules
For the second time since the adoption of the pay versus performance rules (Pay vs. Performance) in August, 2022 (see HERE), the SEC has published guidance via new compliance and disclosure interpretations (“C&DI”). The SEC previously published 15 C&DI on the subject in February 2023 – see HERE.
The Pay vs. Performance rules require companies to provide a tabular disclosure of 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 is 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 are required to describe the relationships between the executive compensation actually paid and each of the performance measures, as well
Nasdaq Listing Deficiencies And Delisting – Part 3
As 2022 and 2023 have continued to be extremely tough years for the capital markets many small cap companies find themselves failing to maintain the minimum continued listing requirements. I’ve recently written about those continued listing requirements, see HERE, and Nasdaq’s proposed rule changes for reverse split notifications as companies struggle to maintain the $1.00 minimum bid price requirement, see HERE.
These blogs provide a perfect segue for a deep dive into the Nasdaq deficiency notice and delisting process. In this first blog in the series, I provided an overview of deficiencies, deficiency notices, cure periods and compliance plans – see HERE. In Part 2, I reviewed the hearing panel process – see HERE. In this Part 3, I will review the appeals to the Nasdaq Listing and Hearing Review Council and delisting. I note that the Nasdaq rules also contain administrative rules regarding the conduct of adjudicators and advisors and the adjudication process, which
Nasdaq Listing Deficiencies And Delisting – Part 1
As 2022 and 2023 have continued to be extremely tough years for the capital markets, many small-cap companies find themselves failing to maintain the minimum continued listing requirements. I’ve recently written about those continued listing requirements – see HERE – and Nasdaq’s proposed rule changes for reverse split notifications as companies struggle to maintain the $1.00 minimum bid price requirement – see HERE.
These blogs provide a perfect segue for a deep dive into the Nasdaq deficiency notice and delisting process. In this first blog in the series, I provide an overview of deficiencies, deficiency notices, cure periods and compliance plans. In the Part 2, I will review the hearing panel process followed by appeals and ultimately delisting.
Overview – Deficiency Notices
When the Nasdaq Listing Qualifications Department determines that a company does not meet a listing standard, it will immediately notify the company of the deficiency. The notification will come in letter format, literally within a day
SEC Chair Gary Gensler’s Annual Congressional Testimony
On September 12, 2023, Gary Gensler gave his annual testimony to the United States Senate Committee on Banking, Housing and Urban Affairs and then on September 27th to the United States House of Representatives Committee on Financial Services (for a review of last year’s testimony see HERE). Both appearances included the same prepared remarks followed by robust Q&A from the lawmakers.
This year Chair Gensler’s prepared remarks focused on: (i) rule amendments and updates; (ii) improving efficiency in equity markets; (iii) disclosure matters and related enforcement including related to cryptocurrency; and (iv) general updates on the SEC and capital markets.
Prepared Remarks
We shouldn’t expect the busy SEC rule making agenda to slow down any time soon. Chair Gensler prioritizes updating rules for technology, business and market changes. Although Gensler’s speech focuses on rule changes to make the markets more efficient and resilient and lower costs, the reality is that not all rule changes will accomplish
NYSE/NYSE American Continued Listing Requirements
Although I often write about initial listing standards, I realized that I have not yet blogged about the reduced ongoing listing standards for national exchanges. Last week I wrote about the Nasdaq continued listing requirements (see HERE) and this week I will cover the NYSE and NYSE American. For a review of the initial listing requirements for the NYSE American see HERE.
NYSE American
The NYSE American prefaces it continued listing qualitative minimum standards with it high level discretionary authority. The basis for continued listing is summed up in Section 1001 of the NYSE Company Guide as follows:
In considering whether a security warrants continued trading and/or listing on the Exchange, many factors are taken into account, such as the degree of investor interest in the company, its prospects for growth, the reputation of its management, the degree of commercial acceptance of its products, and whether its securities have suitable characteristics for auction market trading. Thus, any developments
SEC Publishes New Sample Comment Letter To China Based Companies
Continuing its concerns over the quality of disclosures from companies based in or with a majority of their operations in the People’s Republic of China, in July 2023, the SEC’s Division of Corporation Finance published yet another sample comment letter to China-based companies.
Back in April 2020, former SEC Chairman Jay Clayton and a group of senior SEC and PCAOB officials issued a joint statement warning about the risks of investing in emerging markets, especially China, including companies from those markets that are accessing the U.S. capital markets (see HERE). Before that, in December 2018, Chair Clayton, SEC Chief Accountant Wes Bricker and PCAOB Chairman William D. Duhnke III issued a similar cautionary statement, also focusing on China (see HERE).
The Holding Foreign Companies Accountable Act (“HFCA”) was adopted on December 18, 2020, requiring both the SEC and the PCAOB to adopt rules and procedures implementing its provisions. The HFCA requires foreign-owned issuers to certify that the PCAOB
NASDAQ Proposes Reverse Split Rule Changes
In July Nasdaq filed a proposed rule change with the SEC to establish listing standards related to notification and disclosure requirements of reverse splits. As of the writing of this blog, the proposed rule change has received only a single comment, which supported the change.
Background
After the market highs of the second half of 2020 and all of 2021, we have all witnessed the general decline, including noticeably depressed valuations and market price, especially in the small cap space. In 2022, Nasdaq processed 196 reverse stock splits, compared to 31 in 2021 and 94 in 2020. As of June 23, 2023, Nasdaq has processed 164 reverse stock splits, and projects significantly more throughout 2023. In its rule proposal, Nasdaq notes that the majority of reverse splits are effectuated by smaller companies that do not have broad media or research coverage. These companies generally trade on the Nasdaq Capital Market tier of the exchange and are completing reverse splits
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
SEC Adopts Final New Rules On Cybersecurity Disclosures
On July 26, 2023, the SEC adopted final new rules requiring disclosures for both domestic and foreign companies related to cybersecurity incidents, risk management, strategy and governance. The proposed rules were published in March 2022 (see HERE). In response to numerous comments, the final rules made several changes to the proposal, including narrowing the disclosures in both the Form 8-K/6-K and annual reports on Form 10-K and 20-F.
The final rules add new Item 1.05 to Form 8-K requiring disclosure of a material cybersecurity incident including the incident’s nature, scope, timing, and material impact or reasonably likely impact on the company. An Item 1.05 Form 8-K will be due within four business days following determination that a cybersecurity incident is material. Given the sensitive nature of cybersecurity crimes, the SEC has added a provision allowing an 8-K to be delayed if it is informed by the United States Attorney General, in writing, that immediate disclosure would pose a substantial
