On June 11, 2021 the Securities & Exchange Commission (“SEC” or “Commission”) released its Spring 2021 rulemaking agenda. The agenda highlights the clear shift in focus and prioritization of rulemaking under SEC Chair Gary Gensler and the current majority Democratic Commission.
The SEC Chair acknowledged the ambitious timeframe outlined in the agenda for rulemaking, with some proposed actions set to occur later this year. The Commission plans to address new priorities that Chair Gensler has identified (which the Republican Commissioners have already criticized) and to revisit rules that were recently adopted under the prior administration and certain unfinished rulemakings directed by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The rulemaking agenda spans all of the SEC’s Divisions. Below we discuss planned rulemaking that could impact public companies and their insiders. The agenda reflects the Chair’s and the Commission’s heightened focus on environmental, social and governance (“ESG”) issues, transactions that raise potential investor protection concerns, and transactions involving insiders and the disclosures they provide to the market.
ESG Matters
- Climate Change, Corporate Board Diversity, Human Capital Management, and Cybersecurity Risk Governance Disclosure Proposals. The Commission will propose to amend its climate change and other ESG-related disclosure rules pertaining to human capital, including workforce and board diversity, and cybersecurity risk governance. These proposals reflect the significant U.S. and international markets’ and governmental interest in climate change and ESG-related matters more generally. The proposals will likely incorporate consideration of comments responding to then Acting Chair Allison Herren Lee’s March 2021 request for public input on climate change disclosures. Scheduled Action: Fall 2021.
- ESG Considerations for Investment Companies and Investment Advisers. The Commission is considering proposing requirements for investment companies and investment advisers related to ESG factors, including ESG claims and related disclosures. Scheduled Action: Spring 2022.
- Rule 14a-8 Amendments and Proxy Voting Advice Proposals and Universal Proxy Final Rule. As indicated by Chair Gensler’s June 1 statement, the Commission will revisit a series of rules and interpretative guidance issued in 2019 and 2020 that apply to proxy voting advice and proxy advisors. The agenda also indicates that the Commission will reconsider rules adopted in 2020 that increased the thresholds for the submission and resubmission of shareholder proposals. Additionally, the agenda includes a final rule adoption that would mandate the use of universal proxies in contested elections of directors. Scheduled Action: Spring 2022.
Increased Scrutiny of Securities Transactions & Investor Protection
- Special Purpose Acquisition Companies (“SPACs”), Exempt Offerings, and Share Repurchase Disclosure Modernization. Chair Gensler, other Commissioners, and members of the SEC’s staff have recently voiced concerns with the possible information asymmetries between investors, the financial markets, and companies engaged in a variety of securities transactions, including SPAC IPOs and de-SPAC mergers, exempt offerings, and share buybacks. To address investor protection concerns, the Commission proposes to examine the rules and disclosures that apply to such transactions. Scheduled Action: Spring 2022.
- Gamification. The Commission is considering seeking public comment on potential rules that would address “gamification,” behavioral analysis, predictive analytics and differential marketing in stock trading. The Commission’s proposed actions reflect concerns Chair Gensler expressed in his recent testimony before Congress about the “substantial effect” gamification could have on investors. Scheduled Action: Fall 2021.
Insiders Transactions and Disclosures
- Rule 144 Holding Period and Form 144 Filings and Rule 10b5-1. The Commission proposes to adopt and examine rules that would revise public company insiders’ disclosures and accountability to the market. The rulemaking agenda includes a final rule adopting amendments to Rule 144 and mandating the electronic filing of Form 144. The agenda also proposes examining reforms to Exchange Act Rule 10b5-1 to address concerns of public company and insiders’ potential misuse of Rule 10b5-1 trading plans and the affirmative defense provided by the rule. Scheduled action: Fall 2021.
Revisiting and Addressing Dodd-Frank Items
- Disclosure of Short Sales and Securities Lending. The Commission is considering including rules that would require enhanced disclosure and anti-fraud requirements for short sales and securities lending transactions. Scheduled Action: Fall 2021 and Spring 2022, respectively.
- Listing Standards for Recovery of Erroneously Awarded Compensation. The Commission plans to re-propose rules that would require national securities exchanges to adopt listing standards requiring listed companies to adopt certain incentive-based compensation “clawback” policies. The Commission previously proposed rules to implement this provision in 2015. Scheduled Action: Spring 2022.
- Disclosure of Payments by Resource Extraction Issuers. The Commission proposes to revisit disclosure rules adopted in 2020 that apply to resource extraction companies’ disclosures of payments to governments for the commercial development of oil, natural gas, or minerals. Scheduled Action: Spring 2022.
- Pay versus Performance. The Commission plans to adopt final rules that would require public company disclosures of the relationship between executive compensation paid and a company’s financial performance. The Commission previously proposed rules to implement this provision in 2015. Scheduled Action: Spring 2022.
The complete list of rulemaking plans announced by the SEC can be found here. If you have any questions concerning the material discussed in this client alert, please contact the members of our Securities and Capital Markets practice.
Back
