What could Aristotle possibly have to say about SPACs? In remarks on Thursday before the Healthy Markets Association, SEC Chair Gary Gensler shared his thoughts on the regulation of SPACs with a theme drawn from antiquity: Aristotle’s maxim that we must “treat like cases alike.” That concept, in Gensler’s view, should apply as finance evolves in response to new technologies and new business models. Take SPACs, for example—a type of transaction that, while not exactly new, has really “taken off in the last couple of years.” A SPAC, he said, is really an alternative method of conducting an IPO. The question addressed by Gensler in his remarks is how “this competitive market innovation [should] be treated under our public policy framework,” in effect, giving us a preview of what we may see in SPAC rulemaking, possibly next year.
In a virtual “fireside chat”—is that an oxymoron?—hosted by NYU law, SEC Chair Gary Gensler was interviewed by former SEC Commissioner and current NYU professor Robert Jackson. Much of the discussion involved topics that Gensler has already addressed in the past, such as gamification and digital engagement practices (see e.g., this PubCo post and this PubCo post). Gensler was also quite reluctant to “get ahead of the rest of the SEC” on some issues and purposefully avoided discussion of actions by specific companies, such as Glass-Lewis’s recent announcement that it would offer equity plan advisory services—will that present a conflict?—and BlackRock’s recent decision to pass-through certain voting rights to institutional clients (see this PubCo post). However, he did offer some updates on various projects at the SEC.
At yesterday’s “SEC Speaks” conference from PLI, SEC Chair Gary Gensler and Commissioners Allison Herren Lee, Elad Roisman and Caroline Crenshaw all delivered remarks on different topics. Gensler discussed the use of predictive digital analytics in finance, Lee examined the explosive growth of the private markets and proposed to address the lack of transparency by revising how we define “holders of record” under Section 12(g), Roisman focused on the SEC’s past efforts to facilitate capital formation by reviewing and streamlining existing regulation, and Crenshaw discussed crypto and the need for a meaningful exchange of ideas between innovators and regulators.
SEC Chair testifies before House Committee on Financial Services—climate, human capital and cybersecurity disclosure proposals likely delayed
On Tuesday, SEC Chair Gary Gensler testified for over four hours (without a break!) before the thousands (it seemed) of members of the House Committee on Financial Services. His formal testimony covered a number of topics on the SEC’s agenda that Gensler (and others) have addressed numerous times in past: market structure and equity markets, predictive analytics, crypto, issuer disclosure, China, SPACs and Rule 10b5-1 plans and was remarkably similar to his formal testimony in September before the Senate Committee on Banking, Housing and Urban Affairs. (See, e.g., this PubCo post and this PubCo post.) If you followed any of the coverage of Gensler’s testimony before the Senate committee (see this PubCo post), there was a Groundhog-Day feel to much of the questioning, but the five-minute limitation on questioning (because there are thousands of House committee members) did not really offer much opportunity for in-depth conversation about anything.
SEC Chair testifies before Senate Banking Committee—firmly denies paternity of all public companies!
On Tuesday last week, SEC Chair Gary Gensler gave testimony before the Senate Committee on Banking, Housing and Urban Affairs. His formal testimony covered a number of topics on the SEC’s agenda that Gensler (and others) have addressed numerous times in past: market structure and equity markets, predictive analytics, crypto, issuer disclosure, China, SPACs and Rule 10b5-1 plans. (See, e.g., this PubCo post and this PubCo post.) While the formal testimony covered some well-trod territory, the questioning highlighted the political polarization that we are likely to see continue as these proposals are presented for consideration.
In remarks yesterday on a webinar, “Climate and Global Financial Markets,” from Principles for Responsible Investment, SEC Chair Gary Gensler offered us some clues about what to expect from the SEC’s anticipated climate disclosure requirements by analogizing to the Olympics: there are rules to measure performance and the “scoring system is both quantitative and qualitative,” which “brings comparability to evaluating” performance among athletes and over time. In addition, as with the components of public company reporting generally, the types of sports included in the Olympics change over time—there was no Olympic women’s surfing competition 100 years ago, but interests and demand have changed. So with disclosure requirements, which have gradually expanded to include disclosure about management, MD&A, compensation and risk factors, some hotly debated topics in their time. Now, investors are demanding disclosure about climate risk, and it’s time for the SEC to “take the baton.” To that end, Gensler has asked the SEC staff to “develop a mandatory climate risk disclosure rule proposal for the Commission’s consideration by the end of the year.” In his remarks, he outlines some of the concepts that are being considered for inclusion in that proposal.
In remarks yesterday at London City Week, SEC Chair Gary Gensler elaborated a bit on the bare bones of some of the almost 50 items on the Reg-Flex Agenda that was made public earlier this month. (See this PubCo post.) In Gensler’s view, disclosure protects investors by helping them invest in “companies that fit their investing needs,” helps companies by facilitating capital formation and benefits markets by helping to keep them fair, orderly and efficient—all core responsibilities within the remit of the SEC.
Not only does he want to “freshen up” Rule 10b5-1 (see this PubCo post), SEC Chair Gary Gensler has the same prescription for the rules governing the equity markets. In remarks yesterday at the Global Exchange and FinTech Conference, Gensler observed that “technology has changed how market makers interact, how trading platforms compete, how investors access those markets, and the economic incentives amongst these various market participants.” For example, a few years ago, retail investors weren’t even trading on commission-free brokerage apps. But the rules governing markets were “mostly adopted 16 years ago” and “do not fully reflect today’s technology.” Gensler believes that “it’s appropriate to look at ways to freshen up the SEC’s rules to ensure that our equity markets reflect our mission: to maintain fair, orderly, and efficient markets, while ensuring we protect investors and facilitate capital formation.” Gensler focused his remarks on segmentation and concentration in the equity markets, as well as two fairly recent developments: the rise of payment for order flow (and the related issue of best execution) and gamification. This is clearly an area in Gensler’s sweet spot—having conducted research and taught classes on the intersection of finance and technology—and his remarks were of interest even for those of us who do not typically focus on market structure issues.
Yesterday, in remarks before the WSJ’s CFO Network Summit, SEC Chair Gary Gensler scooped the Summit with news of plans to address issues he and others have identified in Rule 10b5-1 plans. Problems with 10b5-1 plans have long been recognized—including by former SEC Chair Jay Clayton—so it will be interesting to see if any proposal that emerges will find support among the Commissioners on both sides of the SEC’s aisle. In an interview, Gensler also responded to questions about climate disclosure rules, removal of the PCAOB Chair, Enforcement, SPACs and other matters.
Whether and how to regulate proxy advisory firms, such as ISS and Glass Lewis, has long been a contentious issue, with some arguing that their vote recommendations were plagued by conflicts of interest and often erroneous, while others saw no reason for regulation given that the clients of these firms were satisfied with their services. In September 2019, the SEC published in the Federal Register a new interpretation and guidance directed at proxy advisory firms confirming that their vote recommendations were considered to be “solicitations” under the proxy rules and subject to the anti-fraud provisions, and providing some “suggestions” about disclosures that would help avoid liability. (See this PubCo post.) In July 2020, the SEC adopted new amendments to the proxy rules regarding proxy advisory firms, codifying the SEC’s interpretation that made proxy voting advice subject to the proxy solicitation rules. In addition, the SEC adopted two new conditions to the exemptions from those rules for proxy advisory firms, which required disclosure of conflicts of interest and adoption of principles-based policies to make proxy voting advice available to the subject companies and to notify clients of company responses. Compliance with the new conditions was not required prior to December 1, 2021. (See this PubCo post). Yesterday, SEC Chair Gary Gensler directed the staff to consider whether to recommend further regulatory action regarding proxy voting advice. In his statement, Gensler highlighted his direction that the staff consider “whether to recommend that the Commission revisit its 2020 codification of the definition of solicitation as encompassing proxy voting advice, the 2019 Interpretation and Guidance regarding that definition, and the conditions on exemptions from the information and filing requirements in the 2020 Rule Amendments, among other matters.” As a result, Corp Fin issued a Statement indicating that “it will not recommend enforcement action to the Commission based on the 2019 Interpretation and Guidance or the 2020 Rule Amendments during the period in which the Commission is considering further regulatory action in this area.” What approach will the SEC now take to proxy advisory firm regulation?