On July 1, the Securities and Exchange Commission proposed rules directing national securities exchanges and associations to establish listing standards requiring companies to adopt policies that require executive officers to pay back incentive-based compensation that they were awarded erroneously. Recovery would be required without regard to fault. The proposed rules would also require disclosure of listed companies’ recovery policies, and their actions under those policies. The comment period for the proposed rules will be 60 days after publication in the Federal Register. Release.
Securities and Exchange Commission
SEC Provides Additional Analysis Related to Proposed Pay Ratio Disclosure Rules
On June 4, the Securities and Exchange Commission provided additional analysis related to its proposed rules for pay ratio disclosure. The staff believes that the analysis will be informative for evaluating the potential effects on the accuracy of the pay ratio calculation of excluding different percentages of certain categories of employees, such as employees in foreign countries, part-time, seasonal, or temporary employees as suggested by commenters. The staff is making the analysis available for public comment – comments may be submitted by July 6. Release. Analysis.
SEC Proposes Rules to Require Disclosure Regarding the Relationship Between Executive Pay and Company Financial Performance
On April 29, the Securities and Exchange Commission published proposed rules that would require companies to disclose the relationship between executive compensation and the financial performance of the company, as well as how the company compares to members of its peer group. Comments to the proposed rule are due 60 days after publication in the Federal Register. Release. Proposed Rule.
SEC Proposes Rules for Cross-Border Security-Based Swap Transactions
On April 29, the Securities and Exchange Commission published proposed rules that would require non-United States persons that use United States personnel to arrange, negotiate or execute a security-based swap transaction in connection with its dealing activity to include such transaction for purposes of the de minimis exception set forth in Exchange Act Section 3(a)(71)(D). Comments to the proposed rule are due 60 days after publication in the Federal Register. Release. Proposed Rule.
SEC Issues Guidance Regarding Standards Applicable to Waivers of Disqualification under Regulation A and Rules 505 and 506 of Regulation D
The disqualification provisions of Rules 262 and 505 under the Securities Act make the exemptions from registration under Regulation A and Rule 505 of Regulation D unavailable for an offering if, among other things, an issuer, any of its predecessors, or any affiliated issuer is subject to certain administrative orders, industry bars, an injunction involving certain securities law violations or specified criminal convictions. Disqualification also occurs if any of the issuer’s directors, officers, general partners, 10 percent beneficial owners of any class of the issuer’s equity securities, or promoters, underwriters, persons compensated for soliciting purchasers, or any of the underwriters’ or paid solicitors’ partners, directors, or officers, is subject to administrative orders, injunctions, associational bars or specified convictions.
On March 13, the SEC clarified that it may waive Regulation A or Regulation D disqualifications upon a showing of good cause that it is not necessary under the circumstances that the exemptions be denied. A waiver could include conditions or limitations. The SEC has delegated authority to grant these waivers to the Director of its Division of Corporation Finance.
SEC Fee Rate Advisory #4
On February 27, the SEC announced that the Section 31 fee rate for fiscal year 2015 will remain at the current rate of $18.40 per million. Release.
New FAQ’s Regarding the Scope and Implementation of the Volcker Rule Issued by the U.S. Banking, Securities and Commodities Regulatory Agencies
On February 27, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission and the Commodity Futures Trading Commission issued a new set of frequently asked questions and responses regarding the scope and implementation of Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly referred to as the “Volcker Rule.” Among the issues addressed are:
- Loan Securitization Servicing Assets: Are the “rights or other assets” described in § 44.10(c)(8)(i)(B) of the Volcker Rule (“servicing assets”) limited to “permitted securities,” or can other assets be servicing assets for purposes of the loan securitization exclusion?
- Mortgage-Backed Securities of Government-Sponsored Enterprise: How are certain mortgage-backed securities issuers sponsored by government-sponsored enterprises treated under the final rule’s covered funds provisions?
- Covered Fund Exemption; Marketing Restriction on Foreign Banking Organization: The Volcker Rule provides an exemption for certain covered fund activities conducted by foreign banking entities (known as the “SOTUS Covered Fund Exemption”) provided that, among other conditions, “no ownership interest in such hedge fund or private equity fund is offered for sale or sold to a resident of the United States” (the “marketing restriction”). Does the marketing restriction apply only to the activities of a foreign banking entity that is seeking to rely on the SOTUS covered fund exemption or does it apply more generally to the activities of any person offering for sale or selling ownership interests in the covered fund?
- Conformance Period: How do the requirements of the Volcker Rule apply to a banking entity during the conformance period? For instance, must a banking entity deduct its investment in a covered fund from its tier 1 capital prior to the end of the conformance period?
- Foreign Public Fund Seeding Vehicles: The Volcker Rule excludes from the definition of covered fund a registered investment company and business development company, including an entity that is formed and operated pursuant to a written plan to become one of these entities. Would an entity that is formed and operated pursuant to a written plan to become a foreign public fund receive the same treatment?
Link to the website of the Office of the Comptroller of the Currency that sets forth the FAQ’s.
SEC Proposes New Rules for Security-Based Swap Information Reporting
On February 11, the SEC issued proposed new rules and rule amendments to Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information. New rules would require platforms to report to a registered security-based swap data repository (“registered SDR”) a security-based swap executed on such platform, would require a registered clearing agency to report to a registered SDR any security-based swap to which it is a counterparty, and certain other changes. Comments must be received within 45 days after the proposal is published in the Federal Register. Proposed Rule.
SEC Proposes Rules for Disclosure of Hedging Policies
On February 9, the SEC issued proposed rules that are intended to enhance disclosure of company hedging policies for directors and employees, as mandated by Dodd-Frank. The proposal would require disclosure about whether directors, officers and other employees are permitted to hedge or offset any decrease in the market value of equity securities held, directly or indirectly, by employees or directors. The proposed rules would require disclosure in proxy and information statements for the election of directors and apply to companies subject to the federal proxy rules, including smaller reporting companies, emerging growth companies, business development companies, and registered closed-end investment companies with shares listed and registered on a national securities exchange. Release. Proposed Rule.
The SEC’s Office of Compliance Inspections and Examinations (OCIE) Publishes Risk Alert On Addressing Cybersecurity Issues for Broker-Dealers and Investment Advisers
On February 3, the SEC’s Office of Compliance Inspections and Examinations (OCIE) published a Risk Alert that contains observations based on examinations of more than 100 broker-dealers and investment advisers. The examinations focused on how these firms:
- Identify cybersecurity risks
- Establish cybersecurity policies, procedures, and oversight processes
- Protect their networks and information
- Identify and address risks associated with remote access to client information, funds transfer requests, and third-party vendors
- Detect unauthorized activity
A second publication, an Investor Bulletin issued by the SEC’s Office of Investor Education and Advocacy (OIEA), provides core tips to help investors safeguard their online investment accounts, including:
- Pick a “strong” password
- Use two-step verification
- Exercise caution when using public networks and wireless connections