Unless you’ve been unplugged and hiding under a rock recently, you’ve heard that the federal government shutdown has ended—at least for the next three weeks. In a statement today, SEC Chair Jay Clayton said that the SEC has “resumed normal staffing levels and is returning to normal operations.” What that will mean in practice, we don’t really know yet, given the likelihood of significant backlogs that accumulated over the past month. Clayton advised that the leaders of Divisions, such as Corp Fin, are consulting with the staff and “are continuing to assess how to most effectively transition to normal operations.” Corp Fin is expected to publish a statement (as are other offices) “in the coming days regarding their transition plans,” which will be available on the SEC website.
You may recall that at the end of last year, SEC Chair Jay Clayton and Corp Fin Chief Accountant Kyle Moffatt were warning at various conferences about some of the risks the SEC was monitoring, among them the LIBOR phase-out, which is expected to occur in 2021. As reported by the WSJ, Moffatt indicated that “to the extent that the phaseout of Libor is material to a company,…we would definitely expect a company to disclose that fact and describe the implications of the phaseout, including any associated risks, to investors.’” (See this PubCo post.) But, in making that assessment and any related disclosure, what should companies consider?
If you’re looking for some entertaining reading, look no further! It’s the Cooley Alert version of The Big Short: SEC Adopts Final Hedging Disclosure Rules. Why wait for the movie adaptation when you can read the Alert now?
On Tuesday, the SEC finally dredged up the 2015 proposal to implement section 955 of Dodd-Frank regarding hedging disclosure in proxy statements and, without an open meeting, voted—yes finally—to adopt it. Section 955 mandated disclosure about the ability of a company’s employees or directors to hedge or offset any decrease in the market value of equity securities granted as compensation to, or held directly or indirectly by, an employee or director. According to the legislative history, the purpose was to “allow shareholders to know if executives are allowed to purchase financial instruments to effectively avoid compensation restrictions that they hold stock long-term, so that they will receive their compensation even in the case that their firm does not perform.” The final rules were adopted “along the lines proposed,” but with some modifications.
At last week’s meeting of the SEC’s Investor Advisory Committee, the Committee members held a Q&A session with SEC Chair Jay Clayton, followed by a discussion of environmental, social and governance disclosure, where the main question appeared to be whether to recommend that ESG disclosure be required through regulation, continued as voluntary disclosure but under a particular framework advocated by the SEC or continued only to the extent of private ordering as is currently the case.
Among the points addressed in the Q&A was a potential government shutdown. Clayton said that the SEC was planning for a possible shutdown, and that, as in previous shutdowns, he expected the SEC would be able to continue its operations for a number of days post-shutdown.
In a speech given yesterday at Columbia University, SEC Chair Jay Clayton reviewed the SEC’s regulatory achievements over the past year, metaphorically slapping the SEC and the staff on the back for a job well done in accomplishing 88% of the items identified on the SEC’s near-term agenda for fiscal 2018. Of particular interest, however, was his discussion of the some of the priority items on the 2019 agenda. In closing, Clayton hammered again at three risk areas that the SEC is currently monitoring—yes, those three. Clearly, the signal is that companies should consider these risks.
The SEC has posted this announcement regarding the closure of the SEC and the EDGAR system on Wednesday, December 5, 2018, in observance of a national day of mourning for former President George H.W. Bush.