On April 14, 2021, Gary Gensler was confirmed by the Senate as Chair of the Securities and Exchange Commission (“SEC”). In his testimony to the Senate Committee on Banking, Housing and Urban Affairs (“Banking Committee”) prior to his confirmation, Chair Gensler’s opening statement and responses to questions provided insight into three major policy focuses: (1) the SEC’s role in using its disclosure regime to advance environmental, social and governance (“ESG”) issues and political spending initiatives of the Biden administration; (2) the need for market structure reforms, particularly in the equity markets after recent runups in certain meme stocks; and (3) oversight of digital assets, specifically cryptocurrencies. On June 11, 2021, the SEC released its Spring 2021 rulemaking agenda. The agenda focuses on two of the three policy themes that Chair Gensler discussed during his Banking Committee testimony but was silent on the oversight of digital assets (as described in my colleague Sarah Brennan’s article). The SEC’s agenda reflects Chair Gensler’s focus on ESG disclosure issues and market reform initiatives in addition to agenda items focused on insider transactions and Dodd-Frank rulemaking. A summary of each of these initiatives follows:
Climate Change, Corporate Board Diversity, Human Capital Management, and Cybersecurity Risk Disclosure Proposals. The SEC plans to propose rules requiring additional disclosure of climate change and other ESG-related issues pertaining to human capital, including workforce and board diversity, and oversight of cybersecurity risk. The proposals will likely incorporate comments the SEC receives responding to then Acting Chair Allison Herren Lee’s March 2021 request for public input on climate change disclosure. The SEC has indicated that it plans to propose rules by Fall 2021.
ESG Disclosure for Investment Companies and Investment Advisers. The SEC is considering proposing rules related to ESG claims made by registered investment companies and investment advisers and mandating specific disclosure by all investment companies and investment advisers. The SEC has indicated that it plans to propose rules by Spring 2022.
Proxy Voting Advice, Universal Proxy, and Shareholder Proposal Amendments. The SEC plans to revisit a series of rules and interpretative guidance issued in 2019 and 2020 that apply to proxy voting advice and proxy advisers. The agenda indicates that the SEC will seek to adopt a final rule that would mandate the use of universal proxies in contested elections of directors. The SEC also specified that it will reconsider rules adopted in 2020 that increased the thresholds for the submission of shareholder proposals. The SEC has indicated that it plans to take these actions by Spring 2022.
Market Structure Reforms
Gamification. The SEC is considering proposed rules that would address “gamification,” behavioral analysis, predictive analytics, and differential marketing in equity trading. The SEC also plans to address improvements in treasury and fixed income markets as well. The SEC has indicated that it plans to propose rules by Fall 2021.
SPACs, Exempt Offerings, and Share Repurchase Disclosure. Chair Gensler and prior Commissioners have expressed concerns about disclosures that SPACs provide to investors at both the time of the IPO and at the time of the de-SPAC merger. The SEC staff has also expressed concerns regarding the disclosures surrounding exempt offerings and stock repurchases by companies. The SEC has indicated that it plans to propose rules by Spring 2022.
The SEC plans to propose rules that would address potential misuse of Rule 10b5-1 trading plans and the affirmative defense provided by the rule. The SEC is also considering a final rule adopting amendments to Rule 144 and requiring the electronic filing of Form 144. The SEC has indicated that it plans to propose rules by Fall 2021..
Dodd-Frank Related Rulemaking
Dodd-Frank was passed back in 2008 but thirteen years later the SEC is still considering rulemaking under the statute in the following areas:
Pay for Performance Disclosure. Although for years many companies have included disclosure of how executive compensation is tied to performance, the SEC plans to adopt final rules that would require companies to disclose the relationship between executive compensation and financial performance of the company. The SEC has indicated that it plans to propose rules by Spring 2022.
Clawback Policies. The SEC plans to re-propose rules that would require national securities exchanges to implement listing standards requiring listed companies to adopt clawback policies related to incentive-based compensation received by executives. The SEC has indicated that it plans to propose rules by Spring 2022.
Resource Extraction Disclosure. The SEC plans to revisit disclosure rules that were just adopted by the SEC in 2020 that relate to the disclosures resource extraction companies must make about payments to governments for the commercial development of oil, natural gas, or minerals. The SEC has indicated that it plans to propose rules by Spring 2022.
Short Sale Disclosures. The SEC is considering rulemaking that would require enhanced disclosure and anti-fraud requirements for short sales and securities lending transactions. The SEC has indicated that it plans to propose rules by Fall 2021 and Spring 2022, respectively.
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