Two weeks ago, Liz noted the SEC’s announcement that it is suing ISS in federal court to compel compliance with an outstanding administrative subpoena. The SEC’s Division of Examinations had initiated an examination of ISS back in March, and requested that ISS produce data relating to proxy recommendations and votes, including information such as the names of clients who received proxy recommendations and information about votes cast on their behalf.
On Friday, ISS announced that it had filed a brief in the U.S. District Court for the Eastern District of Pennsylvania challenging the SEC’s demand for data as unconstitutional. The announcement notes:
“As a regulated investment adviser, ISS has a duty to protect confidential client information, particularly when the government cannot articulate a legitimate investigative purpose for reviewing this data,” said Subodh Mishra, spokesman for ISS. “The dispute cannot be separated from the broader, coordinated campaign by government actors and outside activists to pressure proxy advisory firms — including through state laws that federal courts have already barred states from enforcing against ISS. They are now targeting the investors themselves based on their relationship with ISS and their protected speech. ISS will not allow its clients’ First Amendment and privacy rights to be sacrificed to government overreach.”
With respect to the First Amendment arguments included in the brief, the announcement highlights the following quotes:
“Where clients communicate their voting objectives and strategies to ISS, many of which concern ‘public issues and political matters,’ their communications are ‘at the heart of protected speech’ under the First Amendment.”
“In this context, confidentiality is critical, as many of ISS’ clients may be unlikely to express their views as freely if they are concerned that their voting choices on sensitive topics will be disclosed, particularly to a government that disagrees with their votes.”
“The First Amendment chilling effect is even more pronounced with respect to other agencies. The Executive Order that launched the investigation against ISS also commanded a whole-of-government effort to target both ISS and its clients for adverse action.”
The brief goes on to note that “[t]he evidence shows that the SEC’s request here is part of a broader campaign to retaliate against ISS and its clients for expressing disfavored political views.” Further, the brief states:
“ISS clients that have voted in ways that the current Administration might disagree with reasonably fear reprisal from the Administration. Indeed, some have already expressed fears of retaliation to ISS. The Executive Order specifically directs federal agencies to single out such clients for adverse administrative action. And the SEC has already begun conducting intrusive examinations of ISS’ clients, with the SEC’s inquiries specifically probing those clients’ voting decisions and their relationships with ISS.”
The outcome of this fight will undoubtedly have broader implications beyond the SEC’s interest in the proxy advisory firms, given the potential impact on the clients of those firms who are utilizing the proxy voting recommendations.
On Friday, the Council of the Corporation Law Section of the Delaware State Bar Association posted a notice on the DSBA website stating:
The U.S. Securities and Exchange Commission recently proposed the repeal of Rule 14a-8 of the Securities Exchange Act of 1934. The Council of the Corporation Law Section of the Delaware State Bar Association is incorporating the potential repeal into its annual review of Delaware’s corporate statutes. From this review, the Council may formulate proposed statutory amendments. If approved by the Corporation Law Section and the Executive Committee of the DSBA, the proposed amendments are recommended to the Delaware General Assembly.
As I had mentioned earlier this week, if the SEC proceeds with its proposed rescission of Rule 14a-8, we will likely see some states consider the enactment of laws that could address shareholder proposals, either in a manner similar to Rule 14a-8 or through some other approach. It appears that the Council of the Corporation Law Section of the DSBA is trying to get out in front in light of the Commission’s proposed action.
The SEC’s proposal to rescind Rule 14a-8 prompted a swift response from the Council of Institutional Investors (CII). On the same day that the proposal was issued, CII Executive Director Glenn Davis issued a statement, bluntly noting:
Let this moment settle in: The SEC, created for the purpose of protecting investors in the aftermath of the Crash of 1929, today proposed to rescind a World War II-era rule protecting shareholders’ ability to suggest ideas to improve the companies they own.
Yes, shareholder proposals can be a source of embarrassment when they reveal a disconnect between shareholders’ and managers’ understandings of what matters to long-term performance; and sometimes they trigger compromise before a vote takes place. That is a feature of strong capital markets, not a basis for a government agency to swat a fly with a sledgehammer.
The proposed rescission is a solution in search of a problem. Nearly all shareholder proposals are non-binding, which means they merely give corporate directors data to make better-informed decisions. Company costs related to shareholder proposals trace largely to self-imposed expenses such as pursuing legal cover to exclude proposals from ballots or funding campaigns to get out the “against” votes. Most publicly traded companies face zero shareholder proposals in a given year.
Could Rule 14a-8 be improved? Sure. But the SEC proposed rescinding the rule in its entirety, with fingers crossed that state legislators and corporate directors will develop a patchwork of new rules resulting in something better. Spoiler alert: That patchwork will launch a new race to the bottom in state corporate law and result in a dramatic reduction in shareholders who qualify as proponents, notwithstanding smaller investors’ history of putting forward many of the most highly supported proposals.
CII will speak publicly and repeatedly to defend Rule 14a-8. We encourage all market participants to do their part in this effort. It’s not about whether you agree or disagree with the substance of particular shareholder proposals. It’s about preserving broad shareholder expression as a vital part of robust capital markets.
Meanwhile, the comments are already starting to pour in on the SEC’s proposal. Trillium Asset Management, LLC submitted a comment letter this week requesting that the Commission extend the public comment period from 60 days to 120 days, while asking the Commission to convene a public roundtable “to gather the views of investors before proceeding further.” These requests were subsequently echoed in a comment letter submitted by the Committee on Mission Responsibility Through Investment, part of Presbyterian Life & Witness, an agency of the General Assembly of the Presbyterian Church.
On Friday, David Woodcock, Director of the SEC’s Division of Enforcement, delivered remarks at The University of Texas School of Law’s 12th Annual Government Enforcement Institute. In his remarks, he provided an update on the SEC’s Enforcement program and highlighted some recently launched initiatives aimed at strengthening the agency’s enforcement efforts and removing roadblocks to efficient enforcement. He noted:
Rather than striving to bring an ever-increasing number of enforcement actions—without regard for their impact or their capacity to positively affect capital markets and investors—I am focused on administering an enforcement program that is strong and visible in the marketplace. As former SEC Chairman Harvey Pitt noted, “an essential predicate for any effective enforcement program is visibility.” The market must see—and feel—that Enforcement is on the job and market participants need to understand that if they violate the securities laws, they will suffer the consequences. We want bad actors to know that Enforcement is committed to detecting and shutting down their misconduct, holding them accountable, and putting appropriate measures in place to prevent them from continuing to violate the law. An enforcement program that is visible contributes to healthy markets and makes investors better off. I am not preoccupied with numbers, because when the Enforcement Division empowers the staff to work efficiently, removes barriers to effective enforcement, and prioritizes impactful cases—and we are—we will produce results without needing to chase numbers.
The Director highlighted the work of the newly-launched Financial Reporting and Accounting Unit and Retail Fraud Working Group, while noting a new focus on the use of technology and coordination, stating:
At the same time, we are examining ways to force multiply through creative uses of technology and through increased interagency coordination. The Division has a new Office of Artificial Intelligence & Analytics, which is focusing on accelerating our practical implementation of Artificial Intelligence and Analytics. We are laser focused on enabling our existing talented workforce to harness these tools to make us much more efficient—freeing our most valuable resource (the staff) to spend more time on case generation, assessment, and thinking.
A word regarding our coordination efforts. I’ve said it before, but we confront increasingly complex schemes that cross borders, regulatory sectors, and legal frameworks, and no single agency can address it in isolation. That is why we are working hard to leverage opportunities to better coordinate with our regulatory and law enforcement partners. The Commission recently announced an MOU with the FDA aimed at enhancing our cooperation in carrying out our regulatory and enforcement responsibilities and facilitating relevant information-sharing. From the Division’s perspective, FDA-related disclosures have a significant impact on our markets, and fostering a closer partnership with the FDA goes hand-in-hand with our responsibility to enforce applicable disclosure requirements under the securities laws. We’re also coordinating our respective enforcement operations with the CFTC through the Harmonization Initiative; working in tandem with the PCAOB to support their important role in the enforcement landscape; and pursuing opportunities for close collaboration with U.S. Attorneys’ Offices, including S.D.N.Y. and here in the Northern District of Texas.
On the topic of removing roadblocks to efficient enforcement efforts, the Director noted:
– The Enforcement Staff is closely monitoring for developments, so it is better for companies to self-report, cooperate and remediate fully.
– In order to speed up investigations, the Director is asking the Staff to consider taking testimony before document productions are complete, when appropriate.
– He expects defense counsel to cooperated fully in resolving an investigation, which involves “responding quickly and clearly to inquiries, scheduling testimony promptly, avoiding serial extensions without cause, raising issues early rather than late, and engaging constructively in pre-enforcement dialogue, which we value and encourage.”
– Defense counsel can expect the Division of Enforcement to seek to remedy subpoena compliance issues by filing subpoena enforcement actions, sooner rather than later.
– Defense counsel should understand that a meeting with a Deputy Director is a meeting with the Front Office.
In his speech, David Woodcock acknowledged that “[f]iscal year 2026 was a transitionary period, but transitions strengthen disciplined programs,” and he noted that “[w]e have recalibrated our pipeline, launched critical initiatives, and re-established core principles.”
The drama continues to unfold with the Nasdaq’s new $5 million minimum market cap requirement for continued listing. Last month, John noted in the blog that the SEC had stayed the new listing standard’s implementation following the filing of notices of intent to petition the full Commission to review the Division of Trading and Markets’ approval. Those notices automatically stay an action taken under delegated authority unless one of a few narrow exceptions applies.
Earlier this month, the Commission granted petitions for a full review of the Nasdaq listing standard. This Sheppard blog notes the implications of the Commission’s latest action:
What the SEC’s Review Means
The SEC will undertake an evaluation of the merits of Nasdaq’s proposal, and the review will likely require the SEC to balance two competing interests:
1. Nasdaq’s Stated Goal: Protecting investors from manipulation and market disorder associated with low-priced stocks.
2. Industry Concerns: Ensuring the rigid standard does not disproportionately harm micro-cap and emerging growth companies by cutting off their access to critical public capital which is necessary to sustain operations and pursue strategic growth initiatives.
The SEC’s decision to undertake a full review does not predetermine the ultimate outcome, but it does mean the proposal will face much closer scrutiny before it can be enacted.
What Happens Next?
The SEC’s review process could take several months. As part of the next phase, the SEC is opening the floor to public input. Any interested party may file a written statement in support of or in opposition to the proposed rule on or before October 6, 2026.
We will keep you posted as the Commission’s review unfolds.
From LinkedIn, Ted Yu has been named Corp Fin’s Chief Counsel, and in that role he will lead the Office of Chief Counsel and oversee the Office of Mergers and Acquisitions.
Ted was serving as Associate Director (Specialized Policy and Disclosure) in Corp Fin prior to taking on the Chief Counsel role. Previously, Ted had served as Chief of the Office of Mergers and Acquisition from 2016 to 2023. Ted has also served in a variety of other roles in Corp Fin, the Chairman’s office, and in private practice.
Congratulations to Ted on his new position! I always say that being Chief Counsel of Corp Fin is the best job you can have as a securities lawyer.
Last week, the SEC announced that it had issued an order granting temporary, conditional exemptive relief to Tokenized Securities Venues (TSV) from the definition of “exchange” to trade tokenized National Market System (NMS) stock using innovative permissioned automated market makers and liquidity pools. The order also grants a temporary, conditional exemption from the definition of “dealer” in the Exchange Act to certain liquidity providers that provide liquidity in tokenized NMS stock. I must admit that this is a word salad that I never anticipated writing during the course of my career!
The SEC’s Fact Sheet does a good job of untangling this knot of strange and mysterious words for old fogey securities lawyers such as myself:
Over the past several years, advancements in distributed ledger technology have facilitated innovations in trading across non-security crypto assets. Increasingly, market participants are seeking to buy and sell tokenized NMS stock using automated market maker (“AMM”) and liquidity pool distributed ledger technology. However, a TSV that trades tokenized NMS stock may face substantial challenges with complying with the Federal securities laws without potentially burdensome changes to its business model. TSVs and the use of distributed ledger technology can offer several benefits to market participants, including enabling investor self-custody, around-the-clock trading, fractional ownership of shares, and near instantaneous settlement, while improving efficiencies and providing greater transparency.
The order granting the exemptions – known as the “Innovation Exemption” – allows market participants to obtain the potential benefits of distributed ledger technology for trading tokenized NMS stock. Specifically, the order facilitates trading in tokenized NMS stock using distributed ledger technology while maintaining appropriate investor protections and fair and orderly market principles as the Commission further considers potential regulatory changes or other actions.
The Fact Sheet further notes that the exemptive relief is subject to a number of conditions, including:
– Tokenized NMS stock traded on a TSV is subject to limits on the number of symbols and volume traded;
– A TSV must verify that the tokenized NMS stock made available for trading on the TSV provides holders the same rights and privileges as does traditional NMS stock of an equivalent class;
– Before making available for trading tokenized NMS stock that is tokenized by an unaffiliated third party, the TSV must provide written notice and an opportunity to object to the issuer of the underlying NMS stock;
– Smart contracts used by a TSV must be auditable, public, and deployed on a public, permissionless distributed ledger; and
– A TSV must provide public notice about its operations, trading activities, and the trading activities of its affiliates on the TSV.
The exemptive order grants the subject relief for a period of five years and solicits public comment about possible modifications to the relief and potential next steps.
When I wrote about my shareholder proposal odyssey last month on the occasion of Corp Fin issuing an announcement that it would no longer consider Rule 14a-8 no-action requests, I was touched by how many folks reached out to me to share their own experiences with shareholder proposals, particularly as part of Corp Fin’s shareholder proposal task force. It reminded me yet again of how fortunate I am to be part of such a great “SEC family,” thanks to my shared experience with so many amazing folks who have worked (and continue to work) at the SEC. Thank you all for reaching out!
I noted at the time that I did not intend “my story of my shareholder proposal odyssey as an ode to the Staff’s now cast-aside no-action letter process – rather, it is dirge to an old friend that had outlived its usefulness.” Now, just a few weeks later, Rule 14a-8 faces its inevitable swan song, after the Commission proposed the rule’s rescission last week. The SEC’s proposing release was published in the Federal Register today, and the comment period will run until November 20, 2026.
I would say that the most frequent question that I have received since last Wednesday is: “Are you surprised that the Commission elected to take the drastic step of proposing to rescind Rule 14a-8 in its entirety?” To that question, I have answered “no,” as I think the handwriting has been on the wall ever since Chairman Atkins was appointed, given his longstanding antipathy toward the rule. Further, even before the political winds significantly shifted more than two years ago now, I argue that Rule 14a-8 was in a state of decline, as the proposals submitted under the rule veered toward the fringes of relevance to stockholders, while the Staff’s interpretations of key exclusions in the rule became more and more politicized. While Rule 14a-8 has certainly played an important role in the overall landscape of shareholder engagement, one cannot ignore the fact that its relevance and reliability has been tested in recent years.
The second most frequent question that I have received over the past five days is: “What happens next, assuming the SEC rescinds the rule?” In response, I think that it is worth noting that it seems unlikely that the Commission could act quickly enough to rescind Rule 14a-8 before the 2027 proxy season is upon us, given that the comment period for the proposing release runs until late November. This leaves us with the prospect of one last act for Rule 14a-8, once again without the involvement of the Staff in the exclusion process. As for the contours of that last act, I would definitely warn “buckle up,” because I don’t think that the usual shareholder proponents are the type to “go gentle into that good night!”
Once we get past the death throes of the 2027 proxy season and assuming that the Commission ultimately acts to rescind Rule 14a-8, there are numerous outcomes that we can anticipate. The rescission of Rule 14a-8 does not mean an end to shareholder proposals, just an end to relatively easy and costless shareholder proposals. Proponents seeking to advance their proposals at annual meetings will need to comply with company advance notice requirements and conduct their own solicitations, which will certainly add to the cost and complexity of pursuing a shareholder proposal. Much like what we saw in the aftermath of the mandatory proxy access debacle when the SEC adopted Rule 14a-11 (which was subsequently vacated by a federal court), “private ordering” could unfold following the rescission of Rule 14a-8 as companies could be strong-armed into facilitating proposals from shareholders in a manner similar to proxy access bylaws for director nominees. Further, we could see the states step up to the plate with legislation that could create processes similar to Rule 14a-8 (or taking different approaches) in order to fill the void left by a rescinded Rule 14a-8. It remains to be seen what exactly what those laws could look like and how such measures would interact with the federal regulation of proxy solicitations.
The third most frequent question that I have received since last Wednesday is: “What do you think the comment process will look like for this proposal?” On that front, I think we can all agree that there will be pointed comments on both sides of the debate, and the image that comes to mind is trench warfare from World War I. It seems likely that the shareholder side and the corporate side will retire to their respective trenches and there is unlikely to be any middle ground reached in the midst of the debate. While I hate to hear myself say this, I don’t think the comment process is going to be effective in swaying the Commission in any particular direction other than moving toward rescission, so in a way it seems like a pointless exercise at this juncture.
Finally, as we have seen with so many other rulemakings (including the aforementioned adoption of Rule 14a-11), the SEC’s actions on controversial rulemakings often end up being reviewed in the federal courts and one can certainly envision a scenario where the Commission’s effort to rescind Rule 14a-8 will find its way to the desks of U.S. Court of Appeals judges. In its proposing release, the Commission raises an interesting argument that the SEC’s authority over the proxy solicitation process is not as plenary as I was taught to believe, which in my mind could pull on a thread that threatens to unravel the entire sweater that is the SEC’s regulation of proxy solicitations. I will be breaking out the popcorn to watch how all of that plays out!
I am a decidedly Autumn person. My birthday is in October. I am a big fan of harvest activities – apple picking, pumpkin farm visits and gorging on apple cider donuts. I experience a sense of relief when football season returns. I enjoy viewing the dazzling show of Fall foliage, particularly when motoring with the top down on a crisp Autumn afternoon. My love of Halloween is well-documented in this blog. I may even occasionally indulge in a delicious pumpkin-spice latte. Even with all that, I must admit that I do feel a twinge of sadness and regret as the autumnal equinox approaches, marking our astronomical tilt into Fall. At my age, the summers start feeling more fleeting and precious, even though the weather is sweltering and the days are often packed with an endless stream of to-do lists and purportedly fun activities. Nevertheless, time relentlessly marches on, and we now find ourselves with October just around the corner.
The inevitable arrival of October means that our October Conferences are just three weeks away! Just in case you have been living under a rock for the past six months, our 2026 Proxy Disclosure Conference and the 23rd Annual Executive Compensation Conference will take place on October 12-13 in Orlando and via webcast. With all of the SEC developments that we cover every day in this blog, on our websites and in our publications, you will definitely want to join us in October for an in-depth discussion of where the experts expect things to go from here. You can also hear directly from the SEC Staff when I interview Corp Fin Deputy Director Christina Thomas on October 12 at the 2026 Proxy Disclosure Conference!
At the risk of sounding like a broken record, I encourage you to sign up for the Conferences today. You can register online or contact us at info@CCRcorp.com or 1-800-737-1271. I look forward to seeing you in October!
When I first heard of 24-hour equities trading, I had a bit of a panic attack, and I don’t think I was alone. Now that we’re getting closer to 23/5 trading, I understand and appreciate that the new overnight trading hours are really just an extension of existing pre- and post-market trading hours. And that does make me feel better because I’ve never gotten an emergency call at 5 am that a client’s stock price is changing on no news, even though “the tape is running” that early. (Hopefully, I am not an outlier?!)
But the feeling of panic is hard to shake. Thankfully, yesterday’s SEC Roundtable on Preparations for 24-Hour Trading was somewhat reassuring. Though it kicked off with Commissioner Peirce vocalizing my fears in her remarks, saying, “There are more fundamental human concerns, like sleep. Extended trading hours will amplify worries about a data feed going down at 3 am or social media rumors tanking your stock while your corporate office slumbers.” Thank you for making me feel seen and calling for this roundtable, Commissioner Peirce!
Here are my top takeaways from the three discussions (from my live notes):
1. 23/5 trading is 79 days away. U.S. exchanges, including the Nasdaq Stock Market, Cboe EDGX, NYSE Arca and 24X, are rolling out 23/5 trading on Sunday, December 6.
2. From 4 am to 8 pm ET, nothing changes. Dan Mathisson, of the SEC’s Division of Trading and Markets, Office of Analytics and Research, explained that the open and close of regular hours are the same. The closing price is the same. He sees no reason for current practices, like releasing earnings after the close of regular market hours, to change. (Though a panelist later noted that issuers may reconsider after-market disclosures if they start to cause undesired volatility overnight. More on that below.)
3. Trading hours are only going up 20%. Existing trading hours currently comprise 48% of the week. Under 23/5 trading, trading hours will comprise 68% of the week.
4. Near-continuous trading is already a reality. Some foreign markets and crypto exchanges operate continuously or nearly continuously. Even U.S.-listed equities have near-continuous trading, between existing pre- and post-market hours on U.S. exchanges and overnight equity trading in NMS stocks on Bruce Alternative Trading System (ATS), MOON ATS or Blue Ocean ATS, the three primary after-hours/overnight trading venues for U.S. equities. That overnight trading on ATSs has been around since 2021.
5. Existing overnight trading is slim but growing and will likely increase with the December 6 launch. In August 2026, just less than 1% of total NMS share volume traded in the overnight session on an average trade date, which reflected a 359% increase year‑over‑year. Overnight trading is dominated by foreign investors (37%). U.S. individuals are 9%, and U.S. institutions are only 7%. While institutional participation in overnight is very limited, institutions are very active from 4 pm to 8 pm. Retail participation is self-directed, not advisor-driven.
The hour with the heaviest overnight trading volume is the 8 to 9 pm window, which is the one hour the exchanges will be closed.
The overnight market (by volume) is mostly low-priced stock. Nine of the top 10 equities traded overnight by volume were subdollar stocks that were still NMS listed and mostly domiciled in Asia. (By dollar value, on the other hand, the top 10 more closely match the top 10 in the regular session.) See this memorandum from the Staff with data on NMS stock activity during the overnight trading session.
6. Large institutional investors and asset managers may initially not participate in overnight trading. BlackRock expects overnight trading to be predominantly led by retail and foreign investors and institutional activity to be event-driven or reactive in nature, so it will be monitoring overnight sessions for market quality and to see if sufficient liquidity develops for institutional-size order flow. December 6 is neither a “big bang” where everything changes, nor is it the end of the story, as market structure and participation will continue to evolve.
7. Preparing for 23/5 trading has promoted harmonization. The corporate action trading halt rules were cited multiple times as an improvement to current procedures and an important example of the harmonization that market participants are working towards so that overnight trading is subject to consistent rules and protections across venues.
8. Overnight hours will include Limit Up-Limit Down (LULD) protections. They’ll operate slightly differently in overnight trading. Trades can happen within a 20% price band, and orders will be rejected outside that band. Market participants plan to monitor this price band and compare it to existing pre-market hours beginning at 4 am, which do not have bands, to consider making these bands more dynamic. That’s because it’s expected that overnight hours will be used to trade around significant news events that come out after hours and there’s concern about limiting price discovery.
9. The main risk to public companies is volatility.Tim Quast from ModernIR, which focuses on supporting US-listed companies with quantitative analytics of equity market behavior, provided the sole perspective from the issuer community on any of the three panels. He expressed concerns that even the existing plan for a 20% band was not sufficient volatility protection from the issuer side. Even when there’s big news, he said, “you don’t want the crowd asleep.” He noted that the process would benefit from the LULD committee seeking the public company perspective.
10. There’s capital formation upside for public companies. The “optionality” of 24-hour trading that many panelists touted doesn’t apply to issuers, which will start seeing their stock trade overnight whether they want it to or not, but overnight trading does have the potential to bring new investors into a stock. The key will be liquidity and stability in overnight markets, as Tim Quast’s submitted comment letter notes.
