Category: Securities

Proposed amendments to shareholder proposal rules—bruised but unbowed?

The SEC may have postponed until next week the open meeting originally scheduled for yesterday to consider adoption of revisions to the shareholder proposal rules, but Reuters has the inside scoop on the outcome of at least one controversial provision: according to Reuters, say farewell to the “momentum” provision. The expected deletion of the provision, Reuters observed, “marks a critical reprieve for supporters of social and environmental motions, which can take years on the ballot to gain traction.” Reuters reports that investors have continued to press the SEC in letters and meetings with SEC staff, hoping to put the kibosh on the proposed amendments altogether. They appear to be having some impact. Will the SEC move ahead in the face of this strong opposition?

Corp Fin amends guidance on extensions of confidential treatment orders

Corp Fin has amended Disclosure Guidance Topic No. 7, Confidential Treatment Applications Submitted Pursuant to Rules 406 and 24b-2, to modify the alternatives available for companies with confidential treatment orders that are about to expire. The guidance—which, as always, is just that and not intended to be binding—addresses procedures for CTRs that were submitted, not under the new streamlined approach adopted last year (see this PubCo post), but rather under the old traditional approach that still lives but is now rarely used. Under the prior guidance, when a CT order obtained under the traditional process was about to expire, companies could use a short-form application for extensions, but they were not permitted to transition to the streamlined new process by simply filing the redacted exhibit on EDGAR following the streamlined procedures. However, under the new amended guidance, transition to the new streamlined approach is now one of the permitted alternatives.

CFTC report on climate change finds major risk to financial system—advocates enhanced disclosure requirements for public companies

This blog doesn’t typically write about the goings-on at the Commodity Futures Trading Commission, but here’s an exception—especially given that its recommendations encompass the SEC. In July, the CFTC voted to establish a Climate-Related Market Risk Subcommittee, which was asked to provide a report that would “identify and examine climate change-related financial and market risks.” The Subcommittee comprised over 30 financial market participants, including members from “financial markets, the banking and insurance sectors, as well as the agricultural and energy markets, data and intelligence service providers, the environmental and sustainability public policy sector, and academic disciplines focused on climate change, adaptation, public policy, and finance.” That Report was released yesterday. What does it conclude? That “[c]limate change poses a major risk to the stability of the U.S. financial system and to its ability to sustain the American economy,” calling for U.S. financial regulators to “move urgently and decisively to measure, understand, and address these risks.” The Report includes 53 recommendations, such as putting an “economy-wide price on carbon,” developing a strategy for integrating climate risks into the monitoring and oversight functions of financial regulators, allowing 401(k) retirement plans to use ESG factors in making investments (contrary to currently proposed controversial DOL regulations) and developing standardized classification systems for physical and transition risks. Importantly, the Report also concludes that current disclosure by U.S. companies is inadequate—in no small part because of what might be a cramped interpretation of the concept of “materiality”—and recommends, as discussed further below, that the SEC update its 2010 guidance on climate risk disclosure and impose specific climate-related disclosure requirements on public companies. Will the Report make a difference?

California court enforces Delaware exclusive federal forum provision

In Salzberg v. Sciabacucchi (pronounced Shabacookie), the Delaware Supreme Court unanimously held that charter provisions designating the federal courts as the exclusive forum for ’33 Act claims are “facially valid.” (See this PubCo post.) Given that Sciabacucchi involved a facial challenge, the Court had viewed the question of enforceability as a “separate, subsequent analysis” that depended “on the manner in which it was adopted and the circumstances under which it [is] invoked.” With regard to the question of enforceability of exclusive federal forum provisions if challenged in the courts of other states, the Delaware Supreme Court said that there were “persuasive arguments,” such as due process and the need for uniformity and predictability, that “could be made to our sister states that a provision in a Delaware corporation’s certificate of incorporation requiring Section 11 claims to be brought in a federal court does not offend principles of horizontal sovereignty,” and should be enforced. But would they be? Following Sciabacucchi, many Delaware companies that did not have FFPs adopted them, and companies with FFPs involved in current ’33 Act litigation tried to enforce them by moving to dismiss state court actions. In an apparent case of first impression, one such case was just decided in the San Mateo Superior Court in California, Wong v. Restoration Robotics (18CIV02609, Sept. 1, 2020).

No primary direct listings for now—order approving NYSE rule change stayed

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.) This week, 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. What’s that about?

SEC adopts amendments to modernize Reg S-K requirements for business, legal proceedings and risk factor disclosures (UPDATED)

[This post revises and updates my earlier post primarily to reflect the contents of the adopting  release.]

By a vote of three to two, on Wednesday, the SEC voted to adopt amendments, substantially as proposed with some modifications, to modernize the Reg S-K disclosure requirements related to the descriptions of business, legal proceedings and risk factors. As Chair Jay Clayton observed in his Statement, these Reg S-K disclosure items “essentially have not changed in over 30 years,” but much has changed in our economy since that time, making these updates well warranted. The changes are a component of the SEC’s Disclosure Effectiveness Initiative and reflect public comments on the SEC’s 2016 Concept Release (see this PubCo post) and the 2019 Reg S-K proposal (see this PubCo post), as well as experience from the staff’s disclosure review process. In devising the final amendments, the SEC considered the “many changes that have occurred in our capital markets and the domestic and global economy” since the requirements were adopted. The amendments largely reflect the SEC’s historic “commitment to a principles-based, registrant-specific approach to disclosure” that, although “prescriptive in some respects,” is “rooted in materiality” and designed to provide an understanding of a company’s business through the lens that management and the board apply in managing and assessing the company’s performance. While there are changes throughout, the most significant change is the enhancement of the disclosure requirement for human capital, a topic that has been front-burnered by the impact of COVID-19 on the workforce. How substantially disclosure changes as a result of these amendments remains to be seen. The amendments will become effective 30 days after publication in the Federal Register.

NYSE persistence pays off—SEC approves primary direct listings

Persistence pays off. In June, the NYSE filed Amendment No. 2 to its application for a proposed rule change to allow companies going public to raise capital through a primary direct listing. Yesterday, the SEC approved that rule change. Prior to this new approval, under NYSE rules, only secondary sales were permitted in a direct listing, which meant that companies that had conducted direct listings looked more like well-heeled unicorns, where the company was not necessarily in need of additional capital. The new rule change is likely to be a game changer for the traditional underwritten IPO. So much so, in fact, that Nasdaq has now also submitted an application to permit companies to conduct direct listings with capital raises. (Update: This order has been stayed. See this PubCo post.)

SEC decreases fee rates for fiscal 2021, which begins October 1, 2020

Today, the SEC announced that it was reducing the fees it charges issuers to register their securities. In fiscal 2021, the fee rates for registration of securities and certain other transactions will be $109.10 per million dollars, down from $129.80 per million dollars last year.

SEC votes to modernize Reg S-K requirements for business, legal proceedings and risk factor disclosures

At an open meeting this morning, the SEC voted (three to two) to adopt amendments, substantially as proposed, to modernize the Reg S-K disclosure requirements related to the descriptions of business, legal proceedings and risk factors. As Chair Jay Clayton observed in his Statement, these Reg S-K disclosure items “essentially have not changed in over 30 years,” but much has changed in our economy since that time, making these updates well warranted. The changes are a component of the SEC’s Disclosure Effectiveness Initiative and reflect public comments on the SEC’s 2016 Concept Release (see this PubCo post) and the 2019 proposal (see this PubCo post)—although the extent to which those comments were taken into account was subject to some debate, as discussed below—as well as learning from the staff’s disclosure review process. As described in the press release, the amendments mainly adopt a “principles-based, registrant-specific approach to disclosure” that is intended to elicit information “on a basis consistent with the lens that management and the board of directors use to manage and assess the registrant’s performance.”  The amendments are also intended to discourage repetition, reduce disclosure of information that is not material and simplify compliance.  While there are changes throughout, the most significant change is the enhancement of the disclosure requirement for human capital, a topic that has been front-burnered by the impact of COVID-19 on the workforce.  The amendments will become effective 30 days after publication in the Federal Register.

Proposal to allow SEC to take certain administrative actions on EDGAR without advance notice

The SEC is proposing a new rule in connection with the administration of EDGAR.  Apparently, with increased volume on EDGAR, the SEC has faced administrative issues that potentially impact EDGAR’s reliability and integrity. (Even phony filings!) Proposed Rule 15 would permit the SEC (and its staff) to take the following actions, including actions without advance, to promote the reliability and integrity of EDGAR submissions.