When we last checked in on the CLARITY Act – which would establish a Congressionally approved regulatory framework for blockchain-based digital assets and clarify the roles of the SEC and CFTC – SEC Chair Paul Atkins was testifying before the Senate Committee on Banking, Housing and Urban Affairs about his support for the legislation and the SEC’s role in implementing it. That was back in February. It’s now late July, with a month-long Senate recess approaching on August 7th.
The House passed the bill earlier this month, after a long delay over various provisions, including ethics concerns about crypto ventures of the President and other officials. In mid-July, Trump agreed to restrictions included in this version of the bill – but now lawmakers have to agree on who would enforce them and how long they would last. This 24/7 Wall St. article from last week gives more detail:
Under the draft released Wednesday, the language would bar the president, vice president, members of Congress, federal judges and other covered officials, along with their spouses, from issuing or sponsoring digital assets for compensation while in office. It addresses the conflict Democrats had demanded be fixed, but with two caveats they seized on immediately: the provision sunsets in 2029, and regulators get a full year after enactment to implement it. The market responded to the initial news, with the total crypto market gaining roughly $70 billion in a day . . .
Senate Republicans released an updated draft on Wednesday, but no floor vote has been scheduled, and Democrats had not reviewed the text when the first objections landed. Traders were already pricing what passage would be worth.
The article continues:
The agreed language hands that [enforcement] job to the Department of Justice (DOJ) alone and leaves state attorneys general out of it. Democrats object because the DOJ answers to the president those rules are written to restrict, and Trump’s former personal lawyer, Todd Blanche, has been running the department as acting attorney general since April while he awaits a Senate vote on his nomination to the permanent job. State attorneys general would stand outside that chain of command, and many of them are Democrats, which is precisely why Republicans want them kept out.
The article notes that the CLARITY Act needs 60 votes to clear the Senate. It also says that due to the approaching midterms, the legislation is likely to stall out if it doesn’t pass before the August recess. Former Chief of the SEC’s Office of Internet Enforcement and avid crypto critic John Reed Stark testified at a “public forum” yesterday and calls the CLARITY Act the “worst financial legislation in modern American history.” On the other side of the coin (no pun intended), proponents say the bill would bring much-needed clarity (hence the Act’s nickname) and help the US compete globally in the crypto industry.
Last week, SEC Commissioner Hester Peirce – lovingly nicknamed “crypto mom” by many in the space – published this statement on crypto vaults and lending strategies. Like any mom knows, “kids” sometimes need reminders and examples:
The Commission, the Crypto Task Force, and staff across the Divisions have done tremendous work in the past year and a half to provide clarity to crypto markets as to when a certain asset or activity is subject to the federal securities laws and, if so, how those laws apply. Much of this work has clarified that many crypto assets and activities are not subject to the federal securities laws. That the securities laws do not apply to all crypto assets and activities, however, does not mean that the securities laws do not apply to any crypto assets or activities. If you do headstands, backflips, and other gymnastics to read the law so that it does not apply to crypto assets and activities that are well within the scope of the federal securities laws, you will have a painful fall. If your activities are within the securities perimeter, a better approach is for you to work with us to find a compliant path forward so that you can use new technology to serve investors without running afoul of the federal securities laws.
Last summer, I issued a statement reminding market participants that “[t]okenized securities are still securities.” That statement addressed a particular example of a broader principle: Moving activities that fall within the scope of the federal securities laws onchain, as a general matter, does not take those activities outside the scope of the laws the Commission administers.
Before anyone gets offended, I’m not saying the folks in this industry are childish or that Commissioner Peirce is treating them that way. But when I read the statement, I couldn’t help but think of the family lore about my husband, who as a high schooler threw a huge rager while his parents were out of town and claimed ignorance of the rules when they found out, saying, “You never told me I couldn’t have a party!” (I sure hope our kids never hear that story or read this blog, because it sounds exactly like something at least one of them would do.)
Anyway, the statement continues:
Vaults and lending strategies may implicate the federal securities laws in several ways. A vault, for example, could be a common enterprise in which users invest money with a reasonable expectation of profits to be derived from the vault deployer’s and curator’s entrepreneurial or managerial efforts.2 A vault that holds securities or allocates assets to investments in securities could fall into investment company territory. Some vaults may function similarly to unit investment trusts that hold a fixed portfolio of assets with little or no active management; others may function similarly to management investment companies; and still others may more closely resemble separately managed accounts that offer individualized client treatment.
Lending strategies also can carry significant federal securities law implications that do not turn on the assets involved. For example, onchain loans, depending on the parties’ motivations, the plan of distribution, and other relevant factors, can bear the hallmarks of notes that are securities.3 Involvement in managing vaults and lending strategies also may implicate investment adviser issues. Whether a particular vault or lending strategy’s structure and activities are within the scope of the federal securities laws will come down to the specific facts and circumstances. Any SEC analysis of these issues requires respect for the limits Congress set on our jurisdiction and an unwavering commitment to protecting developers’ free speech rights.
We welcome inquiries from market participants involved in designing and operating vaults or facilitating onchain lending. You may not fall within our regulatory scope, but, if you do, we welcome the opportunity to talk with you about how to serve your customers in compliance with the federal securities laws. Those laws are flexible because Congress recognized that technologies would change. Sometimes, even with that flexibility, our regulations block innovation and entrench the status quo. We welcome your thoughts on whether we need to modify our rules to accommodate vaults, onchain lending, or other innovations and how we can do so while still ensuring that investors are protected, markets are fair, orderly, and efficient, and capital formation is facilitated.
Being a parent is rewarding, but it can also be exasperating. I imagine that being a crypto mom comes with a mix of victories and headaches too.
We had a lot of folks rushing to sign up last week for our “Proxy Disclosure & 23rd Annual Executive Compensation Conferences” – which are being held in Orlando October 12-13th in Orlando and virtually. Our “Early Bird” rate was set to expire on July 24th, but several members told us that they’ve been traveling and busy in July and they needed a few more days to get internal approval. I can empathize – I had 6 trips in 5 weeks over June and July – all very worthwhile, but I am still digging out! It was great to see many of you in Nashville!
Anyway, we want to do what we can to help, so we’re extending our “early bird” reduced rate by one week. Register by the end of this Friday, July 31st to save on your in-person or virtual registration! You can register online or by contacting us at info@CCRcorp.com or 1-800-737-1271.
Here are the agendas for the Conferences – 14 sessions over two days – with a terrific speaker lineup, valuable course materials, and on-demand replay of all sessions for a year after the event:
– Christina Thomas: The Latest From Corp Fin
– The SEC All-Stars: Proxy Season Insights
– The Fate of Shareholder Proposals
– Fireside Chat with Top Activism Defense Lawyers
– Scary Stories to Tell in the (Securities Law Conference Spot)light
– Keeping Governance In Focus When the Future Is Hazy
– The SEC All-Stars: Executive Pay Nuggets
– Your Compensation Disclosures: New & Improved (We Hope)
– The Top Compensation Consultants Speak
– Bodyguards & Private Jets: Perks on the Radar
– Navigating ISS & Glass Lewis
As I mentioned above, our early bird rates apply to both in-person and virtual attendance, so register online or contact us at info@CCRcorp.com or 1-800-737-1271 before the reduced rates expire – this Friday, July 31st!
Russell Rebalance Day happened a little over a month ago – belated good tidings to all who celebrate every year on the fourth Friday in June. This year is actually the first year that the Index is moving to semi-annual rebalancing, in response to our modern era of volatile markets and heavy index investing, so we will all get another chance to celebrate in December.
For companies “on the bubble,” the reconstitution can have a big impact on stock holdings – and sometimes the legal team is involved with answering questions about what this all means. FTSE Russell’s summary of the June 2026 changes gives a sense of the trading volume that’s involved:
As of June 2025, approximately $12.2 trillion in assets were benchmarked to Russell US Indexes, and reconstitution day continues to rank among the highest trading volume days of the year, with $217.2 billion traded across US stock exchanges at the close of the June 2025 reconstitution.
A recent note from InvestorCom explains what happens when a small company gets big enough to be added to the Russell 2000 or 3000:
– Inundation of Passive Capital: The most immediate shift is a forced wave of buying from passive index funds, ETFs, and quantitative funds that mechanically mirror the Russell indexes. These rigid, “sticky” holders become a permanent fixture of the shareholder base.
– Hedge Fund and Event-Driven Inflows: Ahead of the actual rebalance date, active hedge funds and arbitrageurs “front-run” the inclusion, buying up shares to capture the expected price pop, introducing temporary short-term traders to the register before handing shares over to passive funds.
– Increased Active Institutional Access: Being part of a major benchmark puts the company on the radar of traditional, long-only mutual funds. Many institutional mandates forbid managers from buying unindexed “orphan” stocks. Inclusion unlocks a vast new tier of long-term fundamental investors.
These dynamics have ripple effects too – e.g., they may mean that proxy advisors and institutional stewardship teams will apply different elements of voting policies to the company. And of course, there is a flip side for companies leaving the index – some holders are liquidating, and day-traders may become a bigger part of the base. Weighting matters too – so if a company moves from the Russell 2000 to the Russell 1000, passives may have to sell shares because the company now carries lower weight in the overall index. This Nasdaq article from last year adds color:
– Large caps can have 21% of their float held by Russell 1000 and S&P 500 index tracking funds, up to 28% if it’s also in the Nasdaq-100®.
– Small caps could have 10% of their float held by Russell 2000 tracking funds, up to a total of 27% if they’re also in the S&P 600.
Nasdaq notes that index inclusion tends to create long-term improvements in demand and liquidity. That ultimately makes it easier for companies to raise capital.
Here’s a recent update on litigation surrounding contractual blockers (common tool in offerings of preferred stock and warrants to cap an investor’s beneficial ownership at 4.9% or 9.9%, which can effectively prevent the investor from becoming subject to Section 13(d) or Section 16 if they’re both binding and not illusory) from Alan Dye’s Section16.net Blog:
Resolving an issue of first impression in the Second Circuit, a panel has affirmed the SDNY’s holding that blocker provisions in the defendant’s derivative securities were valid and binding and not illusory, such that the defendants did not beneficially own shares in excess of the cap and therefore were not subject to Section 16(b) as ten percent owners. As discussed in my blog about the district court’s dismissal of the complaint, the plaintiff is the post-bankruptcy successor to Bed Bath & Beyond (BB&B), which sought to recover $310 million of short-swing profits from an investment manager and its client fund based on their conversions of derivative securities and immediate sale of the securities acquired, often executing multiple conversions/sales in a single day, each time acquiring up to 9.9%, selling, and then converting again.
The district court held that a valid blocker must be both contractually binding and not illusory and that the blockers in BB&B’s derivatives met both tests. On appeal, BB&B argued that the blockers were illusory and also constituted a “scheme to evade” the Section 13(d)/(g) reporting requirements within the meaning of Rule 13d-3(b).
Illusoriness. In determining that the blockers were not illusory, the Second Circuit applied the three factors suggested by the Second Circuit’s 2001 decision in Levy v. Southbrook (which are not the same factors suggested by the SEC in an amicus brief filed in Levy that the district court judge had applied, but which the court here did not consider binding):
Whether the holder may waive the blocker in its sole discretion. The blockers did not allow the defendants to waive them unilaterally, but BB&B argued that the parties could have mutually agreed to waive or amend the blockers, and that BB&B would have happily agreed to a waiver to allow for additional cash infusions. The Second Circuit rejected the argument (which the SDNY said was “nonsensical”), saying that deeming a contractual provision to be illusory because the parties could waive or amend it “would render virtually every clause of every contract a sham.”
Whether the blocker lacks a means of ensuring compliance. BB&B argued that it had no means of enforcing the blockers because it had no means of ascertaining the defendants’ total ownership. The court held that the defendants’ obligation to certify, in each notice of conversion, that conversion would not cause them to own more than 10% of the outstanding common was sufficient under Levy to ensure compliance. Here, in addition, the blockers provided that any shares acquired in excess of the cap would automatically be deemed null and void, which prevented the defendants from exceeding the cap.
Whether as a practical reality the investor has ever exceeded the conversion cap. BB&B argued that multiple serial conversions and sales in a single day resulted in the defendants’ ownership of all shares held in the account pending settlement, which exceeded 10% of the class at the end of some trading days. The court held that shares were no longer beneficially owned at the moment of execution of sale, regardless of the technicalities of passing of title or moving shares out of the account. At the moment of execution, the defendants lost beneficial ownership because (i) they no longer had the power to dispose of the shares, since they’d already been sold, and (ii) they could not vote the shares because the governing documents rendered void any shares exceeding the cap.
BB&B argued that the district court’s holding promoted form over substance and gave “a free pass to essentially any competently drafted blocker.” In rejecting that argument, the Second Circuit said that “a comprehensive and legally binding blocker generally should insulate a defendant from Section 16(b) liability” and “it is only when the parties have ignored the terms of their contract and allowed the investor to exceed the conversion cap that we will look beyond the otherwise binding language of the blocker.”
Scheme to Evade. BB&B also argued that the blockers were invalid because they constituted a scheme to evade the reporting requirements of Section 13(d)/(g) (and, indirectly, Section 16). The Second Circuit forcefully rejected that argument, citing Judge Winter’s concurring opinion in the CSX case to say that BB&B confused arrangements “that conceal a defendant’s effective ownership with contractual provisions that prevent an investor from owning a security in the first place.” Judge Winter was expressing disagreement with the district court’s holding that cash-settled total return swaps represent a scheme to evade and said there that Rule 13d-3(b) applies only when “the transaction … [involves a] substantial equivalence of the rights of ownership relevant to control, or include[s] steps that stop short of, or conceal, the vesting of ownership, while nevertheless ensuring that such ownership will vest at the signal of the would-be owner.” The court seemed clearly to endorse Judge Winter’s articulation of what constitutes a scheme to evade for purposes of Rule 13d-3(b), which is consistent with the longstanding view of the SEC staff, as coincidentally restated in new CFIs published only last week.
Yesterday, the SEC announced that it will host a roundtable discussion on preparations for 24-hour trading in the U.S. equity markets. The roundtable will be held from 10 am to 4 pm ET on September 17 at the SEC’s headquarters and streamed live on SEC.gov. Discussions will address “preparations to support overnight trading, operations and resiliency in a 24-hour market and opportunities and challenges for expansion.” An agenda and list of speakers will be provided at a later date.
The SEC is also seeking public comments on 24-hour trading before the event. The announcement explains how to submit those:
Members of the public who wish to provide their views on 24-hour trading may submit their comments electronically or on paper. Please submit comments using one method only. Information that is submitted will become part of the public record of the roundtable and posted on the SEC’s website. All comments received will be posted without change. Persons submitting comments are cautioned that personal identifying information is not redacted or edited from comment submissions. You should submit only information that you wish to make publicly available. All submissions should refer to File Number 4-913, and the file number should be included on the subject line if email is used.
In June, Nasdaq amended its proposal to impose a new $5 million minimum market cap requirement for continued listing. As John noted, the original proposal would have tied the Hearings Panel’s hands pretty tightly (meaning that it only would have been able to overturn a delisting decision if it found Nasdaq got the math wrong and the company never actually failed to satisfy the minimum market cap requirement). The amended proposal adds a bit more discretion and permits the Hearings Panel to grant an exception for a period not to exceed 180 days from a Staff Delisting Determination for the company to demonstrate that it meets all requirements for initial listing.
On Wednesday, the SEC posted an order granting approval of this proposed rule change, as modified by the June amendment. Here’s more info on the content of the rule change as a reminder:
[P]roposed Nasdaq Rule 5810(c)(1) would provide that a Staff Delisting Determination will inform the company that its securities are immediately subject to suspension and delisting when the company fails to comply with the continued listing requirement for MVLS of at least $5 million under proposed Nasdaq Rules 5450(a)(3) or 5550(a)(6) for a period of 30 consecutive business days (“MVLS Requirement”). In addition, the Exchange proposes to amend Nasdaq Rule 5810(c)(3)(C) to provide that a company would not be entitled to any cure or compliance period if the company failed to comply with the MVLS Requirement and would immediately receive a Staff Delisting Determination.
The Exchange also proposes to add to the list of circumstances in which a request for Hearings Panel review will not stay the suspension of a company’s securities from trading. Specifically, the Exchange proposes to amend Nasdaq Rule 5815(a)(1)(B) to provide that a timely request for a hearing will not stay the suspension of the securities from trading pending the issuance of a written Hearings Panel decision where the company received a Staff Delisting Determination due to a failure to comply with the MVLS Requirement. The Exchange states that, given the difficulties with maintaining fair and orderly markets in such low value companies, it believes it is not appropriate for these companies to continue trading on Nasdaq during the pendency of a Hearings Panel review for deficiencies under proposed Nasdaq Rules 5450(a)(3) or 5550(a)(6).
Finally, the Exchange proposes to adopt Nasdaq Rule 5815(c)(1)(I) to provide that in the case of a company that received a Staff Delisting Determination due to a failure to comply with the MVLS Requirement, the Hearings Panel may reverse a delisting decision where the Hearings Panel determines that the Staff Delisting Determination was in error, or grant an exception for a period not to exceed 180 days from the Staff Delisting Determination for the company to demonstrate that it meets all requirements for initial listing.
As previewed by John, the SEC’s Small Business Capital Formation Advisory Committee held a meeting this week, following up on its April meeting. The agenda focused on modernizing market access and encouraging IPOs and small public company capital formation. Chairman Atkins shared remarks, as did Commissioners Peirce and Uyeda. The morning session included remarks from outside speakers Sue Washer, a Biotechnology Consultant and former CEO of a small-cap, Nasdaq-listed company, and Daniel Zinn, General Counsel and Chief of Staff at OTC Markets Group. Sue Washer’s comments addressed the following:
– Despite the expansion of the private markets, private capital raising continues to be challenging for small issuers
– Shortening SEC review times and waiting periods and making shelf registration available immediately would significantly reduce capital raising challenges and costs for small issuers, who often want to move quickly on a capital raise after a business development, like clinical trial results, or when market conditions are positive
– The vigilence required to comply with the numerous rules restricting public company communication is very challenging for small-cap issuers (in particular, at her company, she had many discussions with outside counsel about whether information was MNPI for purposes of Regulation FD)
– Losing EGC status is very burdensome, especially for companies that are still pre-revenue when they lose that status (for example, her company had to double accounting staff for purposes of SOX 404(b) when, in her view, management’s time should have been focused on clinical trials)
– Analyst coverage is a really critical issue for small companies, and this is an area that needs a lot more attention
Sue and members of the Committee expressed support for the SEC’s recent rule proposals and discussed ways in which they addressed some of the challenges Sue identified.
Next, Daniel Zinn shared some suggestions in his prepared remarks, many of which tracked suggestions in OTC Markets Group’s comment letter on the registered offering reform proposal:
– Expand S-3 access to certain foreign private issuers that operate in jurisdictions with reporting regimes comparable to the U.S. and are located in jurisdictions with U.S. extradition treaties
– Permit ATM offerings under Tier 2 of Regulation A
– Expressly recognize OTCQX and OTCQB as qualifying trading markets for at-the-market (ATM) offerings in the final rule text to promote certainty and ensure those markets are actually utilized to conduct ATM offerings, instead of maintaining a separate list of markets designated by the Commission (though he noted that OTC is “thrilled” that the proposal recognizes OTCQX and OTCQB as qualifying trading markets for this purpose)
– Extend ELI and SELI benefits to certain OTCQX and OTCQB issuers
– Extend federal preemption from state Blue Sky laws to secondary trading in securities issued under Regulation A Tier 2 offerings and eligible OTCQX securities
– Modernize Form S-3 eligibility for former shell companies that provide comprehensive disclosure
Nasdaq has now posted on its Global Trading Hours Hub both general Frequently Asked Questions and Corporate Action FAQs. Here are some FAQs from the general document that got my attention, some of which could be gleaned from the SEC’s notice of Nasdaq’s proposed rule change but are nonetheless helpful to have explicitly confirmed.
What are global trading hours?
To meet rising demand for U.S. equities across the globe, Nasdaq is engaging with regulators to offer nearly continuous trading 23 hours a day, 5 days a week, on the Nasdaq Stock Market. This expanded trading schedule will include a new trading session from 9 p.m. to 4 a.m. ET, together with Nasdaq’s current extended trading hours from 4 a.m. to 9:30 a.m. ET and 4 p.m. to 8 p.m. ET, enabling issuers to more efficiently attract capital from across the globe while enabling investors to broaden access and expand wealth-building opportunities. The U.S. trading hours, from 9:30 a.m. – 4:00 p.m. ET and marked by the Opening and Closing Crosses, will continue to set the prices to drive investor transparency across all hours of market operation.
When will the new session be available on Nasdaq?
The industry’s transition to a 23-hour trading day is currently expected to occur on Sunday, December 6, 2026, pending SIP readiness as well as any applicable SEC rule changes.
How will the existing Nasdaq Stock Market trading hours be impacted?
Currently the Nasdaq stock market operates from 4:00 a.m. to 8:00 p.m. ET. There will be no substantive change to current functionality or operations during this time frame.
How will trade date and settlement be affected?
9:00 p.m. to Midnight: Trades will be reported with the next calendar day’s trade date. Midnight to 8:00 p.m.: Trades will be reported with the current day’s trade date. Settlement terms will be based on trade date as they are today.
Will Nasdaq be available for trading on US exchange holidays?
Yes, if a holiday falls between Monday and Thursday, trading will commence at 9 p.m. ET on the holiday evening. For example, if Monday is a US exchange holiday, trading will begin at 9 p.m. ET on Monday and continue until 8 p.m. ET on Tuesday.
How will corporate actions and dividends be handled?
Pending SEC approval, certain corporate actions and dividends will be effective when trading commences at 9 p.m. ET. Certain corporate actions and distributions as described in the rule will be halted before 9 p.m. ET on the day immediately preceding the effective date and resumed at 8 a.m. ET on the effective date. Nasdaq will send a Trade Halt Code of ‘M1’ to denote Corporate Action.
Corporate Actions and Distributions that would remain halted until 8 a.m. ET:
– Symbol and/or CUSIP Change
– Dividends equal to or greater than 25% of the prior Nasdaq Official Closing Price
– Forward and Reverse Splits
– De-SPACs
– Spin-offs
– Security type change (e.g. preferred to common)
– Merger/Mandatory exchange
– Any other corporate action/event where the Exchange determines a halt is necessary for fair/orderly markets, investor protection, or the public interest
The separate, more detailed FAQs on corporate actions and dividends clarify that the one-hour pause between 8:00 PM and 9:00 PM may be insufficient for the processing of the corporate actions listed above, and this uniform halt period will support consistent processing of these changes, reduce operational risk, promote fair and orderly markets and help avoid confusion, price dislocations and erroneous execution issues.
Last week, the Depository Trust & Clearing Corporation (DTCC) announced that it has successfully converted assets at The Depository Trust Company (DTC) into tokens that were used in trades.
The tokenized trades were processed on July 15 and marked a significant milestone that sets the stage for the DTCC Tokenization Service to launch in October 2026 [. . .] The DTCC Tokenization Service enables the issuance of tokenized representations (also referred to as digital twins) of real-world assets that can be delivered to DTC Participant wallets of choice. The DTC-held securities can be converted between traditional and tokenized forms, allowing DTC Participants to access new liquidity pools and execute digital asset strategies with greater flexibility [. . .] This milestone comes seven months after DTC received a No-Action Letter from the U.S. Securities and Exchange Commission (SEC), authorizing DTC to operate a tokenization service for real-world assets it custodies.
The announcement listed 30 market participant firms, blockchain networks, wallets, exchanges, issuers and applications that participated, including Nasdaq, which issued its own press release regarding its role in this milestone that shares more details.
The Nasdaq Stock Market served as the marketplace where trades were executed for later conversion into tokens at the DTCC [. . .] This event demonstrated that DTCC’s tokenization service can serve as a bridge between mainstream markets and digital markets. Throughout the day, DTCC successfully converted production trades on The Nasdaq Stock Market whereby assets held at The Depository Trust Company (DTC) were converted into tokens held in a digital control account and corresponding member firm wallet. The exercise demonstrated tokenization production in a breadth of use cases, asset classes, and number of participants—paving the way for the launch of DTCC’s Tokenization Service later this year. [. . .]
From Nasdaq’s perspective, this initial run of tokenized asset trades is a significant milestone because it shows that tokenization can occur within existing regulatory frameworks.
As noted above, DTCC’s Tokenization Service is expected to launch in October, so stay tuned.
