Month: February 2020
Nasdaq to propose new tier for thinly traded securities
It’s well recognized that the equity markets work pretty well for companies that trade in high volumes, but companies with low trading volumes? Not so much. Thinly traded securities often face liquidity challenges, including wider spreads, higher transaction costs, fewer market makers and potential difficulties for investors that seek to unwind their positions. These issues can discourage small- and medium-sized enterprises from accessing the public markets, a problem that the SEC has been anxious to address. To find potential solutions for these problems, in October 2019, the SEC solicited proposals for changes in equity market structure designed to improve the secondary trading markets for thinly traded securities. Nasdaq has just announced that it has submitted to the SEC an application for exemptive relief that would facilitate its proposal “to establish a tier nestled [sounds very cozy!] within the U.S. public equity markets that is better tailored and far more hospitable to thinly-traded securities than is the all-purpose, undifferentiated market environment in which they suffer today.”
SEC debate on climate disclosure regulation gets heated
On Thursday, January 30, the SEC proposed amendments designed to simplify and modernize MD&A and the other financial disclosure requirements of Reg S-K. (See this PubCo post.) Although the SEC did not hold an open meeting to consider the proposal, several of the Commissioners issued statements that addressed, for the most part, not what was in the proposal, but rather, what wasn’t—standardized disclosure requirements related to climate change. These statements allow us a peek into an apparently heated debate among the Commissioners on the issue of climate disclosure.
SEC issues guidance on disclosure of key performance indicators
On Thursday, in addition to voting to issue a new rule proposal regarding changes to MD&A and other financial disclosure requirements (see this PubCo post), the SEC also issued new companion guidance on the disclosure of key performance indicators and other metrics in MD&A. There has been an increase in investor interest in disclosure of KPIs and similar metrics, as part of MD&A and especially outside of MD&A, for example, in connection with sustainability reporting. (See this PubCo post.) Although the SEC’s guidance applies specifically in the context of MD&A, companies may want to take the guidance into account in other contexts as well.
SEC proposes changes to MD&A and other financial disclosure requirements
On Thursday, once again without holding an open meeting, the SEC voted, with a dissent from Commissioner Allison Lee, to propose to simplify and modernize MD&A and the other financial disclosure requirements of Reg S-K. As summed up in the press release, the proposed amendments are intended to “eliminate duplicative disclosures and modernize and enhance Management’s Discussion and Analysis disclosures for the benefit of investors, while simplifying compliance efforts for companies.” The proposal is part of the SEC’s Disclosure Effectiveness Initiative and follows on the 2013 S-K Study, the Report on Review of Disclosure Requirements in Regulation S-K, required by Section 108 of the JOBS Act, and the 341-page 2016 concept release, which sought comment on modernizing certain business and financial disclosure requirements in Reg S-K (see this PubCo post). The proposal also took into account the staff’s experience with Reg S-K as part of Corp Fin’s disclosure review program. Once again, the proposal employs a more principles-based approach, describing the objectives of MD&A with the goal of eliciting more thoughtful, less rote analysis. Some of the proposed changes are fairly dramatic—such as eliminating selected financial data (Item 301), supplementary financial data (Item 302), and that pesky table of contractual obligations, or adding a requirement to disclose critical accounting estimates—while some just address moving parts and conforming changes. Whether the proposal, if adopted, actually leads to more nuanced, analytical disclosure remains to be seen. The proposal will be open for comment for 60 days.
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