All posts by Cydney Posner

SEC’s investor advocate bemoans 2020 rulemaking agenda and has some ideas for 2021

Let’s just say that the SEC’s Investor Advocate, Rick Fleming, was none too pleased with the work of the SEC this year. Although, in his Annual Report on Activities, he complimented the SEC for its prompt and flexible response to COVID-19, that’s about where the accolades stopped. For the most part, Fleming found the SEC’s rulemaking agenda “disappointing.” While cloaked in language about modernization and streamlining, he lamented, the rulemakings that were adopted were too deregulatory in nature, with the effect of diminishing investor protections. But issues that definitely called for modernization—such as the antiquated proxy plumbing system—despite all good intentions, were not addressed, nor did the SEC establish a “coherent framework” for ESG disclosure. And the SEC “also selectively abandoned its deregulatory posture by erecting higher barriers for shareholders’ exercise of independent oversight over the management of public companies” through the use of shareholder proposals and by imposing regulation on proxy advisory firms. That regulation could allow management to interfere in the advice investors pay to receive from proxy advisory firms and was widely opposed by investors. What’s your bet that he’ll be a lot happier next year?

What issues should be on the 2021 audit committee agenda?

In this new Bulletin, consultant Protiviti identifies key issues for the 2021 audit committee agenda and—no surprise—at least half reflect the impact of COVID-19. The agenda includes four topics related to enterprise, process and technology risks and four related to financial reporting, with a reminder regarding ESG. Also available is an audit committee self-assessment questionnaire. The topics suggested for the audit committee agenda are summarized below.

NYSE proposes to amend shareholder approval requirements

The NYSE is proposing to relax the requirements for shareholder approval of related-party equity issuances and bring them closer into alignment with the comparable Nasdaq rules. The proposal, which would amend Sections 312.03, 312.04 and 314.00 of the NYSE Listed Company Manual, would provide more flexibility to raise capital and includes modifications that are largely identical to the temporary waiver in effect during the COVID-19 crisis. (See this PubCo post and this PubCo post.) In observing the impact of that temporary waiver (which has now been extended through March 31, 2021), the NYSE has seen “that a significant number of companies have benefited from the flexibility provided by the waiver and has not observed any significant problems associated with companies’ completion of transactions permitted by the waiver.”

Corp Fin issues disclosure guidance on SPACs

Happy new year! To complete the year- and term-end surge, just before Christmas, the Corp Fin staff issued CF Disclosure Guidance: Topic No. 11 regarding disclosure considerations for special purpose acquisition companies in connection with their IPOs and subsequent business combinations, often referred to as de-SPAC transactions. As usual, the staff provides some great questions to consider when crafting disclosure.

Last day for Jay

Today is SEC Chair Jay Clayton’s last day at the office, after almost four years as Chair.

SEC approves NYSE proposal for direct listings (updated)

[This post has been updated to reflect the joint statement of Commissioners Allison Lee and Caroline Crenshaw, posted today.]

On August 26, the SEC’s Division of Trading and Markets took action, pursuant to delegated authority, to approve a proposed NYSE rule change that would allow companies going public to raise capital through a primary direct listing. (See this PubCo post.) Five days later, that rule change hit a “snag,” as the WSJ put it—the SEC notified the NYSE that the approval order had been stayed because the SEC had received a notice of intention to petition for review of the approval order. The petition, submitted by the Council of Institutional Investors, was granted in September. Yesterday, after cancelling the open meeting scheduled to address the NYSE rule, the SEC approved, by a vote of three to two, the NYSE’s proposed rule change, as amended. According to the NYSE President, the approval “is a game changer for our capital markets, leveling the playing field for everyday investors and providing companies with another path to go public.” Will primary direct listings now replace SPACs as the favored alternative offering format? Some have even suggested that the approval “will ‘unquestionably’ usher in the end of traditional initial public offerings.” That remains to be seen.
Happy holidays! Happy new year!

SEC proposes changes to Rule 144

Surprise! Yesterday, the SEC announced that it had voted, without an open meeting, to propose amendments to Rule 144 to revise the method for determining the holding period—essentially eliminating tacking—for securities “acquired upon the conversion or exchange of certain ‘market-adjustable securities.’ The proposed amendment is intended to reduce the risk of unregistered distributions in connection with sales of those securities.” It is worth emphasizing that the proposed amendment “would not affect the use of Rule 144 for most convertible or variable-rate securities transactions.” Essentially, the amendment is intended to apply to “floating priced” or “floating rate” convertibles, often referred to as “death-spiral” converts, issued by companies that do not have securities listed, or approved for listing, on a national securities exchange. The proposed amendments would also:
~mandate the electronic filing of all Form 144 notices related to the resale of securities of Exchange Act reporting companies;
~eliminate the Form 144 filing requirement for non-reporting companies;
~change the filing deadline for Form 144 to coincide with the filing deadline for Form 4;
~amend Forms 4 and 5 to add a check box to permit filers to indicate that a sale or purchase reported on the form was made pursuant to a transaction that satisfied Rule 10b5-1(c); and
~make minor changes to Form 144, including eliminating certain personally identifiable information.
The SEC also indicated that it intends to create an “online fillable” document for entering the information required by Form 144 and, where applicable, Form 4. According to SEC Chair Jay Clayton, the “proposed amendments modernize, clarify and strengthen Rule 144, including to ensure that holders of market-adjustable securities are assuming the economic risks of their investment rather than acting as a conduit for an unregistered sale of securities to the public on behalf of an issuer….In addition, the proposed shift to electronic filing of Form 144 provides a necessary update to reflect today’s markets, particularly given the benefits—and the feasibility—of electronic filing our experience over the past nine months has demonstrated.”

Happy holidays! Happy new year!

SEC approves NYSE proposal for direct listings

On August 26, the SEC’s Division of Trading and Markets took action, pursuant to delegated authority, to approve a proposed NYSE rule change that would allow companies going public to raise capital through a primary direct listing. (See this PubCo post.) Five days later, that rule change hit a “snag,” as the WSJ put it—the SEC notified the NYSE that the approval order had been stayed because the SEC had received a notice of intention to petition for review of the approval order. The petition, submitted by the Council of Institutional Investors, was granted in September. Yesterday, after cancelling the open meeting scheduled to address the NYSE rule, the SEC approved the NYSE’s proposed rule change, as amended. According to the NYSE President, the approval “is a game changer for our capital markets, leveling the playing field for everyday investors and providing companies with another path to go public.” Will primary direct listings now replace SPACs as the favored alternative offering format? Some have even suggested that the approval “will ‘unquestionably’ usher in the end of traditional initial public offerings.” That remains to be seen.
Happy holidays! Happy new year!

SEC Chair directs staff to consolidate rulemaking in light of the Holding Foreign Companies Accountable Act

On December 18, the Holding Foreign Companies Accountable Act was signed into law. The HFCAA, co-sponsored by Senators John Kennedy, a Republican from Louisiana, and Chris Van Hollen, a Democrat from Maryland, amends SOX to prohibit trading on U.S. exchanges of public reporting companies audited by registered public accounting firms that the PCAOB has been unable to inspect for three sequential years. The HFCAA also requires substantial action by the SEC to implement it. As I noted in my previous post about the bill (see this PubCo post), it was unclear how the bill would affect or interact with the proposal on this same topic that the SEC staff have been working on, which had been expected this month (see this PubCo post and this PubCo post). Now, SEC Chair Jay Clayton has issued a statement clarifying the situation.
Happy holidays everyone! Happy 2021!

2020 Working Group identifies best practices for virtual shareholder meetings

Just in time for the new proxy season comes this Report of the 2020 Multi-Stakeholder Working Group on Practices for Virtual Shareholder Meetings from the Rutgers Center for Corporate Law and Governance, the Council of Institutional Investors and the Society for Corporate Governance. The report is replete with helpful guidance, detailing best and emerging practices for virtual shareholder meetings. The Working Group updates its 2018 report (see this PubCo post) in light of the deluge of pandemic-induced VSMs that were convened during the 2020 proxy season. Sorry to say, but it seems likely that this new proxy season will see a repeat for the same reason—at least in the first part of the season—so this report should be especially useful.
Happy holidays everyone! Good riddance to 2020! Hooray for science and scientists!