The Dodd-Frank law took effect July 21, 2010.  Subtitle E of Title IX of Dodd-Frank addresses “Accountability and Executive Compensation” (§§951-957). Since the enactment of the act, the Securities and Exchange Commission (SEC) has adopted final rules as to two of the provisions, proposed rules as to two others and has not yet proposed (but has announced it will be proposing) rules as to another three provisions. This post summarizes the current status of regulation projects under Dodd-Frank Sections 951 through 957.
Posts Tagged ‘SEC rulemaking’
Three years ago we petitioned the SEC to modernize the beneficial ownership reporting rules under Section 13(d) of the Securities Exchange Act of 1934 (see our rulemaking petition, our memos of March 7, 2011, April 15, 2011, March 3, 2008 and our article in the Harvard Business Law Review). Since we filed our petition, activist hedge funds have grown more brazen in exploiting the existing reporting rules to the disadvantage of ordinary investors.
Good morning. I am very honored to be giving the welcoming remarks and to offer a few perspectives from my first 10 months as Chair. Looking back at remarks made by former Chairs at this event, the expectation seems to be for me to talk about the “State of the SEC.” I will happily oblige on behalf of this great and critical agency.
In 1972, 42 years ago at the very first SEC Speaks, there were approximately 1,500 SEC employees charged with regulating the activities of 5,000 broker-dealers, 3,500 investment advisers, and 1,500 investment companies.
Today the markets have grown and changed dramatically, and the SEC has significantly expanded responsibilities. There are now about 4,200 employees—not nearly enough to stretch across a landscape that requires us to regulate more than 25,000 market participants, including broker-dealers, investment advisers, mutual funds and exchange-traded funds, municipal advisors, clearing agents, transfer agents, and 18 exchanges. We also oversee the important functions of self-regulatory organizations and boards such as FASB, FINRA, MSRB, PCAOB, and SIPC. Only SIPC and FINRA’s predecessor, the NASD, even existed back in 1972.
In an article recently posted to SSRN I addressed certain issues faced by the SEC in the ongoing Title III rulemaking process under the JOBS Act of 2012, enacted into law by Congress in April 2012. The SEC issued proposed rules to implement Title III in October 23, 2013, and has yet to issue final rules.
Title III of the JOBS Act created an exemption from registration for the offer and sale of so-called “crowdfunded” securities under the Securities Act of 1933, allowing the offer and sale of securities to an unlimited number of unaccredited investors without registration with the SEC, on an Internet-based platform, through intermediaries (portals) which are either registered broker-dealers or SEC licensed “funding portals.” Title III also provided for a number of built-in investor protections, including limitations on the amount invested, a limitation on the amount an issuer may raise in a 12 month period ($1 million), detailed financial and non-financial disclosure in connection with the offering, and ongoing annual issuer disclosure. Congress left much of the details of Title III in the hands of the SEC, to be fleshed out in the rulemaking process.
For nearly 80 years, the Securities and Exchange Commission has been playing a vital role in the economic strength of our nation. Year after year, the agency has steadfastly sought to protect investors, make it possible for companies of all sizes to raise the funds needed to grow, and to ensure that our markets are operating fairly and efficiently.
That is our three-part mission.
But, while commitment to this mission has remained constant and strong over the years, the world in which we operate continuously changes, sometimes dramatically.
When the Commission’s formative statutes were drafted, no one was prepared for today’s market technology or the sheer speed at which trades are now executed. No one dreamed of the complex financial products that are traded today. And, not even science fiction writers would have bet that individuals would so soon communicate instantaneously in so many different ways.
The SEC’s Division of Corporation Finance recently released three Compliance and Disclosure Interpretations concerning the SEC’s so-called unbundling rule (Exchange Act Rule 14a-4(a)(3)), which requires proxies to identify clearly and impartially each “separate matter” intended to be acted upon.
Nearly a year ago, in Greenlight Capital, L.P. v. Apple, Inc., a federal court enjoined Apple from bundling four charter amendments into a single proposal. The Apple decision highlighted the lack of clarity in the unbundling rules and the risk that the SEC or an activist shareholder could challenge a company’s presentation of proposals. The new C&DIs provide bright-line guidance for amendments to equity incentive plans but leave other situations to be considered on a facts-and-circumstances basis and, implicitly, to be discussed with the SEC Staff in cases of uncertainty.
Two new concepts will need to be addressed going forward:
Earlier this evening [January 14, 2014], the Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency (the “OCC”), Federal Deposit Insurance Corporation (such three agencies together, the “Banking Agencies”), Securities and Exchange Commission, and Commodity Futures Trading Commission (the “CFTC” and, collectively, the “Agencies”) issued an interim final rule (the “Interim Final Rule”) regarding the treatment of certain collateralized debt obligations backed by trust preferred securities (“TruPS-backed CDOs”) under the final rule (the “Final Rule”) implementing Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), commonly known as the “Volcker Rule.” The Volcker Rule imposes broad restrictions on proprietary trading and investing in and sponsoring private equity and hedge funds (“covered funds”) by banking organizations and their affiliates.
December 18, 2013 may well mark an historic turning point in the ability of small business to effectively access capital in the private and public markets under the federal securities regulatory framework. On that day the Commissioners of the U.S. Securities and Exchange Commission met in open session and unanimously authorized the issuance of proposed rules  intended to implement Title IV of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”)—a provision widely labeled as “Regulation A+”—and whose implementation is dependent upon SEC rulemaking. Title IV, entitled “Small Company Capital Formation”, was intended by Congress to expand the use of Regulation A—a little used exemption from a full blown SEC registration of securities which has been around for more than 20 years—by increasing the dollar ceiling from $5 million to $50 million. Both the scope and breadth of the SEC’s proposed rules, and the areas in which the SEC expressly seeks public comment, appear to represent an opening salvo by the SEC in what is certain to be a fierce, long overdue battle between the Commission and state regulators, the SEC determined to reduce the burden of state regulation on capital formation—a burden falling disproportionately on small business—and state regulators seeking to preserve their autonomy to review securities offerings at the state level.
Rule 17g-5(c)(1) (the “Rule”) of the Securities Exchange Act of 1934 addresses nationally recognized statistical rating organization (“NRSRO”) conflict of interest concerns by prohibiting an NRSRO from issuing a credit rating where the person soliciting the rating was the source of 10% or more of the total net revenue of the NRSRO during the most recently ended fiscal year.  As noted by the Commission, this prohibition is necessary because such a person “will be in a position to exercise substantial influence on the NRSRO” and, as a result, “it will be difficult for the NRSRO to remain impartial, given the impact on the NRSRO’s income if the person withdrew its business.”  The Commission also recognized that the intent of the prohibition “is not to prohibit a business practice that is a normal part of an NRSRO’s activities,” and that the Commission may evaluate whether exemptive relief would be appropriate. 
On December 18, 2013, the Securities and Exchange Commission (“SEC”) voted to propose amendments to its public offering rules to exempt an additional category of small capital raising efforts as mandated by Title IV of the Jumpstart Our Business Startups Act (the “JOBS Act”). The SEC has proposed to amend Regulation A to exempt offerings of up to $50 million within a 12-month period, and in so doing has created two tiers of offerings under Regulation A: Tier 1, for offerings of up to $5 million in any twelve-month period, and Tier 2, for offerings of up to $50 million in any twelve-month period. Rules regarding eligibility, disclosure and other matters would apply equally to Tier 1 and Tier 2 offerings and are in many respects a modernization of the existing provisions of Regulation A. Tier 2 offerings would, however, be subject to significant additional requirements, such as the provision of audited financial statements, ongoing reporting obligations and certain limitations on sales.