From the SEC

Annual Conference on Current SEC and PCAOB Developments

AICPA and CIMA annual conference

The American Institute of CPAs (AICPA) and the Chartered Institute of Management Accountants (CIMA) held the annual Conference on Current Securities and Exchange Commission (SEC) and Public Company Accounting Oversight Board (PCAOB) Developments in Washington, D.C., Dec. 6-8, 2021. Topics of the conference included:

• Stakeholder roles in fostering high-quality financial reporting
• Environmental, social, and governance (ESG) matters
• Adapting to continuous change

Various stakeholders including preparers, regulators, standard-setters, auditors, users, and others presented the audience with wide-ranging perspectives.

Focus of the Office of the Chief Accountant

On Dec. 6, 2021, acting SEC Chief Accountant Paul Munter issued a statement on the Office of the Chief Accountant’s (OCA) continued focus on high-quality financial reporting in a complex environment. In his statement, he described the OCA’s role in the financial reporting system and shared information about its current priorities and its work related to rulemaking activities, oversight of standard-setting, implementation and application of standards, and application of auditor independence requirements. Munter also described the critical role of various stakeholder groups, including accounting standard-setters, preparers, auditors, and audit committees, and he shared observations regarding key areas of focus for each stakeholder group to promote and produce high-quality financial reporting for investors.

Munter identified these elements of high-quality financial reporting: high-quality accounting standard-setting, high-quality implementation and application of those standards, and high-quality audits. He noted that these are necessary to make sure that investors have the information they need to make well-informed investment decisions. To this end, the OCA supports the SEC’s rulemaking activities, accounting standard-setting oversight, efforts to promote effective implementation and application of those accounting standards, and PCAOB oversight.

Munter highlighted three rulemaking agenda items that are top of mind for most stakeholders: climate risk disclosures, trading prohibitions under the Holding Foreign Companies Accountable Act, and recovery of erroneously awarded compensation. He discussed each of these items in detail, identifying how the SEC and others have been addressing these during the year through guidance, recommendations, and requests.

Munter also said that high-quality financial reporting cannot be achieved without high-quality accounting standards and that one of the OCA’s main objectives is to promote the development of such standards. This is accomplished by assisting the SEC in its oversight of FASB standard-setting and by promoting high-quality international financial reporting standards and accounting consultations.

Shortly after issuing his statement, on Dec. 6, Munter, with other members of OCA leadership including John Vanosdall and Diana Stoltzfus, both deputy chief accountants, conducted a panel discussion at the AICPA-CIMA conference. The discussion expanded on the themes identified in Munter’s prepared statement and provided additional thoughts on topics such as ESG, materiality considerations, consultations, independence, and standard-setting.

Office of the Chief Accountant staff remarks

Representatives from OCA staff on Dec. 6, 2021, reviewed various topics the staff has addressed in the past year, including:

• Consultation themes such as revenue recognition, special purpose acquisition companies (SPACs), digital assets, and segments
• Independence matters
• International activities, including monitoring of international standard-setting bodies
• Audit matters such as role in overseeing the PCAOB and the importance of effective internal control over financial reporting (ICFR)
• Stakeholder engagement

As a reminder of the importance of auditor independence, the OCA staff panel discussion closed with that topic, including advice that auditor independence should not be an afterthought when an entity negotiates the terms of a merger transaction.

Focus of the Division of Corporation Finance

On Dec. 7, 2021, SEC Division of Corporation Finance (Corp Fin) Director Renee Jones; Chief Accountant Lindsay McCord; Craig Olinger, senior adviser to the chief accountant; and deputy chief accountants Sarah Lowe and Melissa Rocha provided an overview of recent activities at Corp Fin that affect accounting and reporting for 2021 year-end filings. Topics included:

• Staff challenges, including volume of transactions and filings
• Special purpose acquisition companies
• Climate change disclosure
• Restatements and materiality considerations
• China-based issuers
• Non-GAAP measures and key performance metrics
• Segment reporting
• Spinoff transactions

McCord also provided Corp Fin remarks during the end-of-day question-and-answer session with some observations on the implementation questions the staff fielded on the now effective final rule (from Nov. 19, 2020), “Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information.”

Enforcement director and chief accountant remarks

On Dec. 9, 2021, at the AICPA-CIMA conference, SEC Division of Enforcement Director Gurbir Grewal and Chief Accountant Matthew Jacques observed that trust in the capital markets rests on three pillars of robust:

• Enforcement
• Remedies
• Compliance

If all three pillars are solid, then the financial reporting ecosystem will build and enhance trust. Grewal remarked that the first two pillars rest on regulators, and his intent is to quickly bring enforcement actions with specific, tailored remedies designed as deterrents. Compliance falls to gatekeepers, and Grewal and Jacques encouraged gatekeepers to hold companies accountable and not succumb to undue pressures.

Grewal provided three example cases the staff had brought during 2021 and remarked on three takeaways:

• Transparency disclosure of how an entity reached numbers is as important as the accuracy of those numbers.
• Effective internal accounting controls are critical to companies and investors alike.
• Accounting is not an “aspirational” reporting model. Companies should take care to report what actually happened and not what the company hoped would happened.

Jacques reminded participants that the pandemic continues to affect financial reporting and challenged all stakeholders to evaluate the current state of their internal controls. He also provided reminders of the importance of materiality in the evaluation of both accounting errors and the effectiveness of ICFR.

Internal controls

Commissioner remarks on internal controls

On Nov. 16, 2021, at a conference on controlling internal controls, Commissioner Caroline Crenshaw spoke about ESG matters, digital assets, and internal accounting controls. Crenshaw identified ESG risks as some of the most pressing issues for public companies and investors and said that the reliability of corporate ESG risk disclosures and their potential impact on and connectivity to financial statements is critical. She said that corporate internal controls play a vital role in making sure that ESG risk disclosures are consistent and reliable and reiterated that management is responsible for establishing and maintaining an effective system of internal controls.

In her remarks, she noted that internal accounting controls must evolve with the markets. She discussed the importance of assessing whether existing corporate internal accounting controls are sufficient to provide reasonable assurances that each business and its assets are adequately controlled. Concentrating first on cybersecurity, Crenshaw noted that she was particularly interested in understanding how public companies are responding to cybersecurity intrusions and attacks, which create threats to management’s ability to safeguard the company’s assets.

Crenshaw shared her thoughts on identifying and measuring climate change risk and her interest in understanding how companies are determining whether and how financial statements are affected by it; how assumptions used to reach these determinations are set, tested, and reevaluated over time; and how disclosures are formulated. Lastly, she touched on safeguarding digital assets and noted that it is critical for companies to consider, among other things, whether the internal accounting controls frameworks safeguarding these assets are working, how they need to be modified from existing frameworks, and what changes need to be implemented.

Public statements and announcements

Testimony before the House committee

Oct. 5, 2021, SEC Chair Gary Gensler testified before the U.S. House of Representatives Committee on Financial Services. Gensler addressed market structure, predictive data analytics, disclosures, and funds and investment management. He closed with comments on enforcement and examinations and resources at the SEC.

Gensler discussed the Treasury market, non-Treasury fixed income markets, equity markets, security-based swaps, and crypto asset markets and described the market structure-based projects that he has asked SEC staff to review. These projects include enhancing resiliency and competition in the Treasury market, reconsidering some initiatives on Treasury trading platforms, bringing greater efficiency and transparency to the non-Treasury fixed income markets, and updating the SEC’s rules to address new technologies. He described the rules going into effect this year and next year for security-based swaps and the rules in process for the registration and regulation of security-based swap execution facilities. He also identified the need for additional investor protections in crypto finance, issuance, trading, and lending and the need to work with other regulators on this.

After touching on the potential conflicts and systemic risk that might arise with predictive data analytics, Gensler spoke about the importance of consistent, comparable, and decision-useful disclosures related to climate risk, human capital, and cybersecurity. He also discussed SPACs and his request to staff for recommendations on enhancing SPAC disclosures. Gensler provided testimony related to enhancing disclosures with regard to how Chinese companies issue securities in the U.S. Finally, he mentioned tightening insider trading rules.

While discussing funds and investment management, he highlighted the increasing number of funds that market themselves as “green,” “sustainable,” “low-carbon,” and similar. Gensler noted the importance of understanding what supports those claims and shared that the SEC staff is developing a proposal on cybersecurity risk governance, which will address issues such as cyberhygiene and incident reporting.

Independent audits and effective audit committee oversight

On Oct. 26, 2021, SEC acting Chief Accountant Munter issued a statement addressing the importance of high-quality independent audits and effective audit committee oversight to high-quality financial reporting to investors. He noted the upcoming 20th anniversary of the Sarbanes-Oxley Act (SOX) and said that “it is critical for all gatekeepers in the financial reporting ecosystem (auditors, management, and their audit committees) to maintain constant vigilance in the faithful implementation of the requirements of SOX by fulfilling their shared responsibilities to continue to produce high quality financial disclosures that are decision-useful to investors and maintain the public trust in our capital markets. An integral part of the faithful implementation of SOX is for audit firms to remain independent of their audit clients and for audit committees to take ownership of their oversight responsibilities with respect to the independent auditor.”

While emphasizing the importance of understanding and applying the general standard of independence, Munter identified auditor independence as “foundational to the credibility of financial statements.” He went on to discuss the responsibilities of audit committees, management, and audit firms in considering independence. He warned that as companies pursue access to public markets through new and innovative transactions, and audit firms continue to expand business relationships and nonaudit services, independence must always be considered. Further, Munter highlighted the importance of audit committee oversight of the independent auditor. He stressed that audit committees play a key role in the external independent audit process and that an effective audit committee enhances the auditor’s independence. In his closing, he shared that the gatekeepers should work together and that an effective audit committee overseeing the independent audit is critical to providing high-quality financial information to the capital markets.

Market volatility report

The SEC staff issued, on Oct. 18, 2021, a report titled, “Staff Report on Equity and Options Market Structure Conditions in Early 2021.” The report provides a description of the U.S. market structure and securities regulatory framework and examines what happened with GameStop Corp. stock, a “meme stock,” which experienced dramatic increases in its share price in January 2021. The report examines trading activity of GameStop stock, increasing individual investor participation, short selling, and trading restrictions, among other topics.

The report proposes that “meme stock” events present an opportunity to reflect on the market structure and regulatory framework and identifies the following areas for potential study in the interests of protecting investors; maintaining fair, orderly, and efficient markets; and facilitating capital formation:

• Forces that might cause a brokerage to restrict trading
• Digital engagement practices and payment for order flow
• Trading in dark pools and through wholesalers
• Short selling and market dynamics

Also on Oct. 18, Gensler released a statement on the staff report, and Commissioners Hester M. Peirce and Elad L. Roisman released a separate statement. Gensler highlighted the importance of furthering efforts to make equity markets as fair, orderly, and efficient as possible. Saying they “looking forward to a robust policy discussion,” Peirce and Roisman stated, “We always should be on the lookout for ways to improve our rules and our markets.” However, they noted that “it does not appear that many conclusions can be drawn from the data [in the report].”

Remarks on LIBOR

On Sept. 20, 2021, Chair Gensler spoke on the London Interbank Offered Rate (LIBOR) to the “SOFR Symposium” hosted by the Fed’s Alternative Reference Rates Committee. He gave a short history of LIBOR transition and reiterated his June 11 message that the Bloomberg Short-Term Bank Yield Index (BSBY), championed by certain commercial banks as an alternative to LIBOR, might have the same conceptual perils as LIBOR. In conclusion, he shared that he agreed with the committee that the Secured Overnight Financing Rate (SOFR) is a preferable alternative rate.

Staff statement on LIBOR transition

The SEC, on Dec. 7, 2021, published “SEC Staff Statement on LIBOR Transition – Key Considerations for Market Participants” as a reminder to investment professionals of their obligations when recommending securities linked to the LIBOR. It also reminds companies and asset-backed securities issuers of their disclosure obligations related to LIBOR transition. This statement follows previous staff statements addressing other aspects of the approaching LIBOR transition and addresses:

• Background and general considerations for market participants
• Broker-dealer registrants: recommendations to retail customers
• Broker-dealer registrants: municipal securities underwriting and sales to customers
• Registered investment advisers and funds
• Disclosure considerations for public companies and asset-backed securities issuers

SEC commissioner remarks on risks

On Sept. 24, 2021, before the “Symposium on Building the Financial System of the 21st Century” hosted by the Program on International Financial Systems and Harvard Law School, Commissioner Crenshaw presented remarks on assessing risks. She warned, “In times of consistent and positive stock market returns, we should not be lulled into complacency,” and said market participants and regulators must continually be aware of and assess risks. Crenshaw added, “the difficulty of anticipating the unknown does not relieve us of our responsibility to be proactive.”

Crenshaw noted that risks are both from within the financial system and external. Related to risks within, Crenshaw discussed riskier investments with higher yields, swaps, and options trading. She said, “Effective compliance and risk management at financial institutions doesn’t just protect those institutions and their shareholders, it also helps make financial markets more resilient.” She shared that some of these investments and strategies are very risky and can result in significant losses. For external risks, Crenshaw concentrated her remarks on climate, cybersecurity, and geopolitical risks. She further highlighted actions the SEC is taking relating to these risks and stressed the need for disclosures.

Chair and commissioners crypto markets remarks

On, Dec. 2, 2021, SEC Chair Gensler and Commissioner Hester Peirce delivered remarks before the Investor Advisory Committee on crypto markets and regulatory concerns.

Gensler shared thoughts on the crypto markets, including:

• The markets have been catalysts for change and innovation.
• As this asset class has $2.6 trillion aggregate market capitalization, it belongs inside public policy.
• The asset class is full of fraud, scams, and abuse.
• Crypto does not have sufficient investor protection, and existing protections have significant gaps.

He said these leave the crypto markets open to manipulation and investors vulnerable. He warned that it is best to be preemptive in addressing investor protection and not wait until a major issue arises. Further he cautioned that “financial innovations throughout history don’t long thrive outside of our public policy frameworks.”

In her remarks, Peirce also reiterated the importance of investor protections in the crypto markets and specifically touched on other areas of investor protection that are important to consider, including:

• Regulatory clarity. Peirce said that the SEC has not provided clarity in response to repeated questions, which has led to enforcement actions. She requested the committee urge the SEC to address the tough questions surrounding the crypto markets’ identification, trading, platforms, and custody.
• Investor access. She noted that while the SEC recently started permitting bitcoin futures-based exchange-traded funds, the commission has yet to approve a spot exchange-traded product.
• Individual liberty. She wondered if the SEC could regulate with a “lighter hand” so as to not use regulation to force investors into the SEC’s “comfort zone.”

In addition to the remarks made by Gensler and Peirce, The International Journal of Blockchain Law published a statement by Commissioner Crenshaw on Nov. 9, 2021. Crenshaw’s article includes a discussion of the advantages and shortfalls of decentralized finance (DeFi). She says that DeFi presents a multitude of opportunities; however, it also poses important risks and challenges for regulators, investors, and the financial markets. She includes background on the current regulatory landscape for DeFi, the SEC’s role, and two structural hurdles that should be addressed. The hurdles that Crenshaw identifies are the pseudonymity and lack of transparency, both of which make it easier to conceal manipulation.

Chair response to report on stablecoin regulations

In a report released on Nov. 1, 2021, the President’s Working Group on Financial Markets, working in conjunction with the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, examines potential risks and regulatory gaps related to stablecoins, cryptocurrencies that are valued by a specified reserve asset, and offers recommendations for mitigating these risks. The report outlines some background on the growing use of stablecoins in the U.S. digital asset markets and describes a range of risks associated with increased stablecoin-related activities including risk of fraud, misappropriation, conflict of interest, market manipulation, money laundering, and terrorist financing, among others.

In response, SEC Chair Gensler issued, on Nov. 1, 2021, a statement describing the report as thoughtful. He said the use of stablecoins presents many public policy challenges, and the SEC and the Commodity Futures Trading Commission (CFTC) will deploy, as applicable, the full protections of the federal securities laws and the Commodity Exchange Act to stablecoin arrangements.

Remarks on SPACs

Chair Gensler presented prepared remarks before the Small Business Capital Formation Advisory Committee on Sept. 27, 2021. Gensler concentrated his remarks on the unprecedented surge in SPACs, which provide an alternative to traditional IPOs. He said the many costs of SPACs include sponsor fees, dilution for the private investment in public equity investors, and fees for investment banks and financial advisers. He has requested recommendations from the SEC staff about how the SEC might update its rules so that investors are better informed about the fees, costs, and conflicts that might exist with SPACs. He said that enhanced disclosures and other provisions can increase competition in this market and shared a final thought that “it is worth considering what we have learned from SPACs and direct listings, and whether there are any changes that might be appropriate for traditional IPOs.”

At the Healthy Markets Association Conference on Dec. 9, 2021, Gensler delivered a speech on the use of SPACs to go public. He said that SPACs have many moving parts and a two-step structure that creates additional conflicts, including conflicts between investors that remain throughout the deal and those that cash out after voting. Gensler has requested that the SEC staff offer proposals about “how to better align the legal treatment of SPACs and their participants with the investor protections provided in other IPOs, with respect to disclosure, marketing practices, and gatekeeper obligations.”

Additionally, Gensler has asked the SEC to provide recommendations about how investors might be better informed about the fees, projections, dilution, and conflicts that may exist during all stages of SPACs and how investors can receive those disclosures at the time they’re deciding whether to invest. As part of this process, the SEC staff is also considering clarifying disclosure obligations under existing rules.

Gensler also discussed concerns about who is performing the role of “gatekeeper” in the SPAC transaction process. He noted that gatekeepers may include directors, officers, SPAC sponsors, financial advisers, and accountants. He said that some might “attempt to use SPACs as a way to arbitrage liability regimes. Many gatekeepers carry out functionally the same role as they would in a traditional IPO but may not be performing the due diligence that we’ve come to expect.” With regard to liability, he warned that “SPACs do not provide a ‘free pass’ for gatekeepers.” Recommendations are expected from the SEC staff about how the SEC can better align incentives between gatekeepers and investors as well as how the SEC can address the status of gatekeepers’ liability obligations. Gensler reminded the audience that as these recommendations are being developed, the SEC’s Division of Enforcement will continue to make sure that investors are being protected in the SPAC area.

Rules and guidance

Regulatory agenda updates

In December 2021, the SEC announced updates to its regulatory agenda, which lists short- and long-term regulatory actions the SEC plans to take. The revised agenda provides updated forecasts for potential rulemaking action on various topics including climate change, human capital, board diversity, and cybersecurity governance. Commissioners Roisman and Peirce communicated alternative perspectives on certain aspects of Chair Gensler’s regulatory agenda on Dec. 13.

New proxy rules for contested elections

On Nov. 17, 2021, the SEC adopted final rules that require parties in a contested election to use universal proxy cards that include all director nominees presented for election at a shareholder meeting. The rule changes will allow shareholders to vote by proxy for their preferred combination of board candidates – similar to the rules for in-person voting. Additionally, to further facilitate shareholder voting in director elections, the SEC adopted amendments to make sure that proxy cards clearly specify the applicable shareholder voting options in all director elections and to require proxy statements to disclose the effect of a shareholder’s election to withhold its vote. Compliance with the rules, which will be applicable to all nonexempt solicitations for contested elections other than those involving registered investment companies and business development companies, will be required for any shareholder meeting involving contested director election held after Aug. 31, 2022.

In response to the final rules, Commissioners Crenshaw, Allison Herren Lee, Roisman, and Peirce all issued statements.

Guidance on spring-loaded compensation of executives

On Nov. 29, 2021, SEC staff issued Staff Accounting Bulletin No. 120, which outlines new interpretive guidance on “spring-loaded” awards to executives, and estimating the fair value of share-based payment transactions under ASC Topic 718, “Compensation – Stock Compensation,” when an entity has not yet released known and material nonpublic information. Spring-loaded awards are share-based payments granted shortly before the release of market-moving information, such as an earnings release with better-than-expected results or the disclosure of a significant transaction. SEC staff observes that spring-loaded awards should receive particular scrutiny from those charged with governance over a public entity’s compensation and financial reporting. In addition, any incremental value related to the anticipated release of material nonpublic information should be considered as an entity measures compensation cost for such awards.

The new guidance addresses whether adjustments to the current share price or the expected volatility assumption are appropriate when using a measurement method based on fair value for share-based payment transactions. The staff provides examples of when adjustments might be necessary and also offers reminders of an entity’s corporate governance and disclosure obligations as well as the need to maintain effective ICFR.

Shareholder proposal guidance

The SEC’s Corp Fin, on Nov. 3, 2021, issued Staff Legal Bulletin (SLB) No. 14L, “Shareholder Proposals,” to provide information for companies and shareholders regarding Rule 14a of the Securities Exchange Act of 1934, which allows companies to exclude shareholder proposals from their proxy statements in certain circumstances.

Companies regularly request assurance that SEC staff will not recommend enforcement action if they omit a proposal based on one of the exclusions (“no-action relief”) set forth in Rule 14a-8. Accordingly, Corp Fin has issued this bulletin to streamline and simplify the process of reviewing no-action relief requests and to provide clarification of the standards applied to evaluate such requests. Upon issuance, this SLB replaces previously issued SLBs 14I, 14J, and 14K and provides guidance relating to proof of ownership letters and the use of graphics and images. The bulletin also provides new guidance on the use of email for submission of proposals, delivery of notice of defects, and responses to those notices.

This bulletin is not an SEC rule, regulation, or statement and does not alter or amend applicable law, and it creates no new or additional obligations.

In response the issuance of the bulletin, SEC Chair Gensler issued a statement, on Nov. 3, 2021, saying that the bulletin is consistent with the SEC’s original intent under Rule 14a-8 and will provide greater clarity to companies and shareholders on when exclusions may or may not apply.

Offering alternative views on the shareholder proposal guidance, Commissioners Peirce and Roisman also issued a statement on Nov. 3, 2021. Peirce and Roisman say the new guidance fails to address the issues that the three rescinded bulletins were trying to resolve.

New policy on Rule 14a-8 no-action requests

On Dec. 13, 2021, Corp Fin staff issued “Announcement Regarding Staff Responses to Rule 14a-8 No-Action Requests,” announcing a change in practice effective immediately. In 2019, Corp Fin discontinued its practice of responding to each shareholder proposal “no-action request” with a written letter and communicated the majority of responses through notations to a chart maintained on their website, except in very limited cases. Effective with the release of the announcement, Corp Fin will return to responding to each shareholder proposal no-action request with a written letter.

Proposals

Amendments to proxy voting advice rules

On Nov. 17, 2021, the SEC approved for public comment proposed amendments to its rules governing proxy voting advice. First, the SEC is proposing to rescind conditions to the availability of two exemptions from the proxy rules’ informational and filing requirements on which proxy voting advice businesses often rely. Second, the proposed amendments would rescind the 2020 changes made to the proxy rules’ liability provision.

Comments were due Dec. 27, 2021.

Commissioners Crenshaw, Lee, Roisman, and Peirce issued statements on the proposed proxy voting advice.

Proposal to increase securities lending market transparency

The SEC, on Nov. 18, 2021, published a proposed rule on the reporting of securities loans. The rule is intended to strengthen the transparency and efficiency of the securities lending market. It would require lenders of securities to provide the material terms of securities lending transactions to a registered national securities association. That association would then make available to the public certain information concerning each transaction and aggregate information on securities on loan and available to loan.

Concurrent with the release of this proposal, Chair Gensler released a statement noting that securities lending and borrowing is an important part of the U.S. market structure and that the public benefits from transparency and competition. Gensler said, “It’s important that market participants have access to fair, accurate, and timely information,” and “this proposal would bring securities lending out of the dark.”

Comments were due Jan. 7, 2022.

Proposed amendments to share repurchase disclosures and reporting

On Dec. 15, 2021, the SEC issued proposed amendments to its rules covering disclosure about an issuer’s repurchases of its equity securities, commonly known as share buybacks. The proposed rules would apply to issuers that repurchase securities registered under Section 12 of the Securities Exchange Act of 1934, including foreign private issuers and certain registered closed-end funds. Under the proposed amendments, issuers would be required to complete and provide a new Form SR before the end of the first business day following the day the issuer executes a share repurchase. This new form would include disclosure of the class of securities purchased, total amount purchased, average price paid, and the aggregate total amount purchased on the open market in reliance on the safe harbor in Exchange Act Rule 10b-18 or pursuant to a plan that is intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c).

Additionally, the proposed rules would require an issuer to disclose:

• The objective or rationale for the share repurchases and the process or criteria used to determine the amounts of repurchases
• Any policies and procedures relating to purchases and sales of the issuer’s securities by its officers and directors during a repurchase program, including any restriction
• Whether the issuer is making its repurchases pursuant to a plan that it intends to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c) and/or the conditions of the Exchange Act Rule 10b-18 nonexclusive safe harbor

Comments are due 45 days after publication in the Federal Register.

Proposed amendments to insider trading plans and related disclosures

The SEC, on Dec. 15, 2021, issued a proposal, “Rule 10b5-1 and Insider Trading,” for public comment. This proposal includes amendments to Rule 10b5-1 under the Securities Exchange Act of 1934 to enhance disclosure requirements and investor protections against insider trading. The proposal includes updates to Rule 10b5-1(c), which provides an affirmative defense to insider trading for parties that frequently have access to material nonpublic information, including corporate officers, directors, and issuers.

The amendments would update the requirements for the affirmative defense by imposing a cooling-off period before trading could commence under a trading plan, prohibiting overlapping trading plans, and limiting single trade plans to one trading plan in any 12-month period. Additionally, the proposal would require directors and officers to furnish written certifications that they are not aware of any material nonpublic information when they enter into the plans. New disclosures about an issuer’s policies and procedures related to insider trading and practices around the timing of options grants and the release of material nonpublic information also would be required. A new table would report any options granted within 14 days of the release of material nonpublic information and the market price of the underlying securities on the trading days before and after the disclosure of the material nonpublic information.

Comments are due 45 days after publication in the Federal Register.

Staffing updates

On Dec. 20, 2021, Commissioner Roisman announced his intention to resign his position as commissioner by the end of January 2022.

On Sept. 28, 2021, the SEC announced that Dan Berkovitz, a CFTC commissioner, has been named SEC general counsel, effective Nov. 1, 2021. Berkovitz will replace John Coates, who will return to teaching at Harvard University. Berkovitz has served as a CFTC commissioner since September 2018. Prior to that he was a partner and co-chair of the futures and derivatives practice at the law firm WilmerHale, an adjunct professor at Georgetown University Law School, and vice chair of the American Bar Association Committee on Derivatives and Futures Law. He also served as the CFTC’s general counsel from 2009 to 2013.