The recently announced joint venture between crypto exchange OKX and NYSE-parent ICE to launch 24/7 trading of tokenized stocks under the SEC’s “Innovation Exemption” appears to be going over like a lead balloon with the issuer community. According to media reports, nearly 90% of the issuers whose stocks were targeted for tokenization have objected to their inclusion. Nevertheless, it’s full speed ahead for the OKX-ICE platform, which according to this Finance Magnates article looks a lot different than what was originally envisioned:
After roughly 90% of its target companies exercised regulatory vetoes to block third-party token trading, OKXICE has overhauled its launch roster, leaning heavily on leveraged ETFs and crypto-friendly names ahead of a planned November 23 debut.
The joint venture between crypto exchange OKX and New York Stock Exchange parent Intercontinental Exchange (ICE) announced over 70 assets for round-the-clock trading, including 59 Direxion ETFs and tokenised shares of Coinbase, Robinhood, and Circle, Reuters reported.
The offering marks a departure from the 63 blue-chip names originally proposed, underscoring how a SEC veto mechanism has given corporate boards power over blockchain secondary markets.
According to an Incrypted.com report, only 6 companies targeted for inclusion on the platform haven’t objected – Robinhood, Securitize, BitGo, Circle, Coinbase, and Strategy.
Earlier this week, I blogged about the Delaware Corporation Law Council’s white paper and draft legislation addressing precatory stockholder proposals. UCLA Prof. Stephen Bainbridge has weighed in with his comments on the Council’s proposal, and he’s not a fan. In this excerpt, he argues that the Council’s draft legislation would create a right that Delaware has never recognized:
Recall the distinction the SEC drew in its proposing release between the universal proxy rule and Rule 14a-8. The former merely replicates a state-law right to vote for directors that clearly exists. The latter’s underlying state-law right to propose precatory matters is, at best, uncertain. The Council agrees. Indeed, it goes further, suggesting that CA, Inc. v. AFSCME casts doubt on whether a stockholder-adopted bylaw could require proxy placement for business proposals, “because a corporation cannot deviate from Section 141(a) except in the charter.” (5 n.6) So consider what the Discussion Draft actually does.
In CA, Delaware’s highest court told us that a bylaw forcing the board to spend corporate funds in ways against which the board’s fiduciary duties might counsel impermissibly intrudes on the board’s § 141(a) authority. The Council’s answer is to have the General Assembly impose by statute what the stockholders arguably could not impose by bylaw. Section 141(a), of course, provides that the business and affairs of the corporation shall be managed by or under the direction of the board “except as may be otherwise provided in this chapter.”
A statute is the one instrument that can override board authority without running into AFSCME. That the Council reached for it should give us pause. When the SEC withdraws, Delaware’s default under current law is that the board controls the company’s proxy statement. Draft § 214 does not codify that default. It reverses it.
Prof. Bainbridge calls out several other issues with the proposed legislation, including its departure from Delaware’s generally contractarian approach to corporate law, its abandonment of Rule 14a-8’s ordinary business exclusion, and its elevation of precatory proposals as a method for holding boards accountable.
Check out our latest “Timely Takes” podcast featuring Cleary’s J.T. Ho & his monthly update on securities & governance developments. In this installment, J.T. reviews:
– Tokenized Stock Trading: Considerations for Issuers
– KPI Binary Options: A New Tradable Market in Company Metrics
– Implications of the Climate Action 100+ Section 21(a) Report
– Retail Voting Program Developments
– New CFIs on Registration of Comp Plan Securities & Form 4 Timing
As a bonus, J.T. also discussed the SEC’s recent CFIs on Item 2.01 of Form 8-K
As always, if you have insights on a securities law, capital markets or corporate governance issue, trend or development that you’d like to share in a podcast, we’d love to hear from you. You can email me and/or Meredith at john@thecorporatecounsel.net or mervine@ccrcorp.com.
Earlier this week on The AI Counsel Blog, I wrote about the 9th Circuit’s decision to strike down part of California’s climate disclosure statutes on First Amendment grounds. At least one prominent commenter argues that, if followed to its logical conclusion, this decision could have broad implications for the federal securities laws’ disclosure regime.
The Court upheld California’s Scope 1 and 2 disclosure requirements on the grounds that they constituted commercial speech subject to intermediate scrutiny under the First Amendment. However, it concluded that the Scope 3 disclosure requirements and those modeled on the Task Force on Climate-Related Financial Disclosures (TCFD) framework didn’t qualify as commercial speech. Consequently, those disclosure requirements were subject to strict scrutiny, which they could not withstand.
In a recent Business Law Prof Blog post, Prof. Ann Lipton was kind of blown away by the Court’s approach to the First Amendment issues:
The Ninth Circuit determined that Scope 3 determinations “compel[] companies to collect, synthesize, and report information about the conduct of independent actors across complex commercial networks, including suppliers, customers, distributors, and other third parties throughout the value chain. Because Scope 3 disclosures concern diffuse third-party conduct in the value chain, they are insufficiently tethered to the reporting entity’s own operations and capital transactions to qualify as commercial speech.”
From there, the court determined – essentially categorically – that they are too inherently uncertain to be of much use to investors.
As for the TCFD disclosures, the court concluded they were “noncommercial speech” that include “subjective ideological assessments,” such as identifying the transitional and physical risks of climate change, and the process for identifying and managing these risks. The court explained, “SB 261 requires companies to opine on whether climate change poses financial risks to their operations and business model, thereby making predictive judgments about uncertain future conditions. Companies must also analyze and disclose whether mitigating those risks is worth the cost, requiring them to make normative assessments about competing priorities and values….SB 261 ‘would require [a covered entity] to convey the company’s policy views on intensely debated and politically fraught topics….’” Thus, they were not commercial speech.
Reader, my jaw dropped.
The securities laws today require companies to make numerous assessments about the risks and their mitigation efforts (check out disclosures required about cybersecurity). I can’t even imagine what the world would look like if regulators had to make fine-tuned judgments about whether a required disclosure concerned “diffuse third-party conduct,” let alone “subjective ideological assessments” of risk.
Ann asks if the 9th Cir. is saying that all risk-related securities disclosures are unconstitutional, or that it’s merely the politicized nature of climate change that makes this disclosure requirement cross the line? She points out that the Court accepts the fact that climate change is real and that it has real economic effects on business, and says that if this is the baseline, “does the mere fact that some people continue to dispute the reality of climate change turn it into a politicized topic on which the government cannot compel speech to investors?”
Last week, Meredith blogged about reports indicating that AI-related disclosures are likely to remain an area of scrutiny for the SEC’s Division of Enforcement. This Debevoise memo offers guidance for public companies on some disclosure best practices in the current environment:
– Review Public and Investor-Facing Statements. Involve legal, compliance, and technical personnel in the review of SEC filings, earnings-call scripts, investor presentations, websites, and marketing materials. Private companies should apply similar scrutiny to fundraising communications. Reviews should test for inaccurate claims and material omissions, including statements that conceal or downplay a company’s use of AI or the associated financial and strategic resources, a practice sometimes called “AI hushing.”
– Define AI and Agentic Capabilities Precisely. Use consistent AI terminology internally and externally, reflecting what AI systems actually do. Distinguish conventional automation from agentic functionality, and avoid portraying pilots as scaled deployments or human-supervised workflows as fully autonomous. Descriptions of safeguards should match the controls actually in place.
– Substantiate—and Revisit—Claims About Results. Document the basis for claims about AI functionality, reliability, revenue, productivity, or staffing impacts through testing, deployment records, and other reasonable evidence. Distinguish existing capabilities and demonstrated benefits from future plans, and reassess claims as systems, adoption, and performance change.
– Use Risk Assessments to Inform Disclosures. For higher-risk AI uses, consider conducting impact assessments to identify foreseeable risks and mitigation measures. Use those findings to evaluate whether disclosures adequately address material AI uses and risks, including hallucinations, confidentiality, cybersecurity, and reliance on human review. These practices can also help mitigate securities class action risk.
The latest issue of The Corporate Executive newsletter has been sent to the printer. It is also available online to members of TheCorporateCounsel.net who subscribe to the electronic format. The issue includes the article “Legal Review of Earnings & Other Press Releases,” in which we take a deep dive into the complex world of reviewing earnings and other press releases.
If you are not already receiving the important updates we provide in The Corporate Executive newsletter, please email info@ccrcorp.com or call 1.800.737.1271 to subscribe to this essential resource.
If the SEC repeals Rule 14a-8, the states are going to have some big shoes to fill when it comes to establishing rules governing stockholder proposals. Yesterday, the Delaware Corporation Law Council took the first step in that direction when it issued a White Paper on the controversial topic of precatory stockholder proposals along with draft legislation setting forth the limited circumstances under which those proposals would be permitted.
This Gibson Dunn blog summarizes the key provisions of the draft legislation, which would add a new Section 214 to the DGCL:
– Covered companies. Section 214 would apply only to listed companies with a market capitalization of at least $30 billion, measured as of the tenth day before the notice record date for the prior year’s annual meeting. Stockholders of smaller listed companies and of private companies would not be able to submit precatory proposals, and newly public companies would have a five-year grace period before precatory proposals would be permitted.
– Number of precatory proposals. Companies would be required to allow stockholders to submit and include in the company’s proxy materials (i) up to three precatory proposals in the aggregate at companies with a market capitalization of $100 billion or more, (ii) up to two precatory proposals at companies between $50 billion and $100 billion, and (iii) one precatory proposal at companies between $30 billion and $50 billion.
– Eligible proponents. A proponent would need to beneficially own (i) at least $250,000 in market value of voting stock individually, or (ii) together with up to nine co-filers, at least $1 million in market value of company stock, in each case held continuously for 365 days as of a date 30 days before the submission deadline. A stockholder could be the proponent or co-filer of only one proposal per meeting.
Directors, officers and persons acting for them would not be eligible for proponent or co-filer roles for these purposes (meaning their ownership would not count toward the caps). If more than the permissible number of precatory proposals are submitted and not otherwise excluded, the eligible proponents (together with their respective co-filers) owning the greatest number of shares would be allowed, with ties broken by random selection.
– Timing and content. Proposals would need to be received at least 180 days before the anniversary of the prior year’s annual meeting (subject to adjustment if the meeting date is advanced by more than 30 days), and, consistent with current Rule 14a-8, the proposal and any supporting statement together could not exceed 500 words. Again, similar to the current Rule 14a-8 process, a proponent would receive a single 14-day opportunity to cure deficiencies in its submission materials or word count.
– Bases for exclusion. The Discussion Draft lists 12 bases for exclusion, most of which are borrowed from Rule 14a-8’s procedural or substantive requirements, including (i) late or incomplete submissions, (ii) excess length, (iii) failure to meet the ownership requirements, (iv) a proposal that expressly questions the character of a director nominee, (v) a proposal that primarily seeks to redress a personal grievance, and (vi) a proposal that “no rational person would determine” is relevant to the company.
A resubmission bar would apply to a proponent where the same proponent submitted a proposal at either of the two preceding annual meetings at which precatory proposals could be presented and that proposal received less than 15% of the votes cast. The Discussion Draft does not authorize exclusion based on ordinary business, substantial implementation, violation of law or the lack of power to implement, or false and misleading statements.
– Proxy placement and presentation. If the company solicits proxies, up to the number of permissible proposals would be required to be included in the company’s proxy materials and on the company’s form of proxy. The company could include a statement in response or opposition and would be required to state that the proposal and supporting statement are solely the responsibility of the proponent.
The White Paper also provides that the company and its directors and officers would not be responsible under Delaware law for the proponent’s statements. As under Rule 14a-8, no vote would be taken on a precatory proposal unless the proponent or its proxy holder attends the meeting and requests a vote or the person presiding over the meeting submits the precatory proposal for a vote.
– Disputes. Only the proponent, and not a co-filer, could challenge the company’s determination that a proponent or proposal fails to satisfy Section 214’s requirements.
– Private ordering. Charters and bylaws could neither add to nor reduce the statutory requirements. In addition, a stockholder proposal could not request that the company adopt a charter or bylaw provision or policy that would provide for the inclusion of precatory proposals in company proxy materials outside Section 214.
Binding proposals would not be subject to the limits set forth in Section 214. Stockholders could continue to present and solicit proxies in support of any binding proposal addressing proper subject matter under Delaware law. Binding proposals could be subject to reasonable advance notice bylaws, and the company would not be required to include them in its proxy materials unless required by federal law. The draft legislation provides that it would become effective upon repeal of Rule 14a-8.
With Nasdaq and NYSE’s moves to 23×5 trading set to kick off next month, this Skadden memo offers guidance for public companies on issues they should keep in mind. This excerpt discusses the potential implications of 23/5 trading on insider trading and other corporate policies:
Consider whether existing insider trading policies and trading window procedures require amendment in light of the new overnight session. For companies listed on the New York Stock Exchange, whose policies are tied to the preserved Core Session (9:30 a.m. to 4 p.m. ET), the overnight session may require little or no policy change. For Nasdaq-listed companies, the consolidation of pre-market, regular and post-market hours into a single Day Session (4 a.m. to 8 p.m. ET) may shift the meaning of policy terms like “market hours,” “market close” and “trading day.” Those companies should consider whether their insider trading policies and trading windows should reference specific hours rather than exchange-defined sessions.
Nasdaq-listed companies also should consider reviewing other corporate policies and equity plans that reference exchange-defined sessions, which may have shifted under Nasdaq’s consolidated two-session structure. For instance, it may be advisable for companies to clarify how certain aspects of
their equity plans or policies will be interpreted in light of 23×5 trading, particularly for Nasdaq-listed companies’ equity plans that reference exchange-defined sessions (e.g., using “closing
sales price” in the Fair Market Value definition).
Other issues that the memo says public companies need to consider include the implications of longer trading days for disclosure practices, including press releases and SEC filings, whether definitional provisions in contractual arrangements need to be modified for the new environment, and how extended trading hours may impact the way capital markets transactions are structured.
Tomorrow is Veterans Day, and on behalf of everyone here at CCRcorp, I’d like to express our sincere thanks to all who served our nation. Here’s a blog I posted on the 75th anniversary of D-Day over on the John Tales Blog on DealLawyers.com that I thought might be appropriate for today:
Forgive me this departure from the law-related stuff, but since this week is the 75th anniversary of D-Day, I wanted to share a remarkable story that I heard when my wife and I visited Normandy a few years ago.
We spent a couple of weeks in France in 2016, and saw so many beautiful sites that I honestly can’t remember them all. But I’ll never forget this nondescript little church on the outskirts of a postage-stamp sized town in Normandy called Angoville au Plain, a few miles inland from Utah Beach. It’s a place that most D-Day tours don’t visit, but we had a very small group that day, and our guide decided to take a little detour to visit “her favorite site.”
From June 6 to June 8, 1944, Angoville au Plain was fought over constantly and changed hands several times. When the Americans first took it on D-Day, they set up an aid station inside this church. The pews remain blood stained to this day.
When the Germans counter-attacked, it became apparent that the Americans were going to have to retreat. Many of the wounded couldn’t be moved, and the two medics running the aid station – Robert Wright and Kenneth Moore – refused to pull out and leave them behind. Their commander agreed to let them stay.
The Germans arrived shortly after the Americans pulled out. When they did, they saw the medics tending to the wounded and carrying them into the church. The German commander asked if they would treat the German wounded too. They said that they would, and he let them carry on with their work.
Soon, wounded German soldiers found their way to the church. The only condition Wright and Moore imposed was that they leave their weapons outside. At one point, German soldiers on patrol stumbled into the church. They pointed their weapons at Wright and Moore, but when they saw they were treating both U.S. and German soldiers, they backed out, and had a red cross flag placed next to the door.
During the first night, a battle raged in the church yard. Although the church was once hit by a stray shell, throughout the fight, the Germans and the Americans respected the neutrality of this site, and these two medics treated 80 wounded American and German soldiers, along with a French child. Only two of the people they treated died.
The 101st Airborne finally took the town for good on June 8th. Kenneth Moore and Robert Wright were both awarded the Silver Star for gallantry. Moore was 20 years old. Wright was 19.
Enjoy the holiday. Our blogs will be back on Thursday.
Last week, Senators Elizabeth Warren (D – Mass.) and Chris Van Hollen (D – Md.) sent an 8-page letter to SEC Chair Paul Atkins asking the agency to reconsider its recent rulemaking proposals. In the title of this blog, I said that the senators sent Chairman Atkins their love with this missive. I should clarify that I meant that in the same way King George III did in Hamilton, when he told his rebellious subjects that he’d “send a fully armed battalion to remind you of my love. . .”
In their letter, the soon-to-be Chair of the Senate Banking Committee and her colleague fire a broadside at all of the SEC’s recent proposals to ease the regulatory burden on public companies. This excerpt from the first paragraph gives you a sense of the senators’ position and the overall tone of their correspondence:
Although you claim to want to “Make IPOs Great Again,” the SEC’s specific proposals to deregulate the public company registration and disclosure regime represent an unprecedented attack on investors’ rights to transparency from public companies and threaten to undermine investor protection and market integrity. Your broad deregulatory agenda would compromise the integrity of our capital markets at a moment when Americans are already reeling from spiraling costs and unprecedented corruption in the Trump economy. We urge you to rescind these recent proposals that would put families and investors at even greater risk.
As I said, the letter asks the SEC to reconsider all of these proposals, but I want to focus on the authors’ objection to the SEC’s efforts to promote IPOs through deregulation. The letter argues broadly that the dearth of IPOs isn’t the result of overregulation but instead reflects, among other things, the impact of deregulation of the private markets. The letter contains a bunch of footnotes citing academic studies supporting these arguments, but it also refers to the SEC several times as the “Security and Exchange Commission,” which doesn’t exactly enhance the letter’s credibility when it comes ideas about securities regulation.
The way the letter lays out its argument about the supposed deregulation of private markets as a cause of the decline in IPOs is a bit of a head scratcher. Here’s what the authors say:
Expanded opportunities to raise capital with less expense and oversight in the private markets has created a structural disincentive to going public. In other words, it is not that public markets are overregulated, it is that private markets are underregulated, and repeated deregulatory reforms have pulled more and more capital from the public markets into the private markets. Lighter regulatory requirements – such as no obligation to provide investors with financial statements, quarterly reports, material event reporting, or disclosure about executive compensation – have incentivized a growing number of companies to raise capital in the private markets rather than go public.
Really? Private companies have never been required to provide annual executive comp information or periodic reports to investors and have been able to offer securities privately without any specific disclosure requirements – at least in offerings involving accredited investors – ever since Reg D was adopted in 1982.
It’s hard to see how pointing out things that private companies have never been required to do or have been permitted to do for nearly 45 years supports claims that “repeated regulatory reforms” have incentivized issuers to stay private. The letter goes on to cite the rise in Reg D offerings in support of its argument, but that seems to me to confuse cause and effect when it comes to the lack of IPOs. To be fair, the studies that the letter cites make more sophisticated arguments, but this is the one that, for whatever reason, the authors chose to run with.
The policy concept here seems to be that instead of lightening the load on public companies, the way to bring back IPOs is to drive “underregulated” private companies into the public markets with the lash. That’s absolutely nuts, and the fact that the authors offer it up with a straight face only confirms what many suspect: a lot of policymakers on the left think that companies exist for the sole purpose of churning out disclosures to satisfy ever-expanding activist group demands and to provide grist for the academic tenure mill.
That’s too bad, because an agency like the SEC that has acted without any input from commissioners who disagree with its swashbuckling deregulatory approach for nearly two years is in dire need of sober-minded congressional oversight. But if this letter is an example of what we can expect, those oversight efforts are going to fall far short of the mark.
