As Liz shared, we’re running an 18-question anonymous survey – prepared in collaboration with our friends at Fenwick & West and Orrick – on how public companies and late-stage private companies (in various industries and with various market caps) are thinking about the SEC’s recent semiannual reporting proposal and the push to extend trading hours.
As Liz noted, the semiannual reporting rules are just at the proposal stage. That means aggregated data from responses to surveys like this one may provide helpful info in the rulemaking process. We want to be sensitive to the many comment deadlines in July, so if you want to contribute to the discussion by participating in the survey, please do so by tomorrow morning.
You don’t have to be a member of TheCorporateCounsel.net to take the survey, so we invite all of our readers to take a few minutes to complete it. The results to date will pop up at the completion of the survey, and we’ll share the final results when the survey closes.
On Monday, the SEC submitted a proposal to OIRA titled “Electronic Delivery of Information Under the Federal Securities Laws.” While the document itself isn’t publicly available (and this proposal wasn’t on the latest Reg Flex Agenda), recent speeches have suggested that the SEC Staff was working on rulemaking along these lines. For example, as this Reed Smith blog notes, in testimony before the House Financial Services Committee and the Senate Committee on Banking, Housing, and Urban Affairs in February, Chairman Paul Atkins “said the agency is examining recordkeeping expectations for digital communications and ways to increase flexibility around electronic delivery of shareholder and investor materials.” At SEC Speaks in March, he continued the discussion:
As just one example of the gulf between regulation and reality, our rules still default to paper delivery for shareholder communications. In an age of algorithmic trading and artificial intelligence, I believe that requirement ought to be a relic, not a standard.
In fact, not long after the first SEC Speaks in the seventies, the late SEC Commissioner Roberta Karmel observed that “data analyzing technology has progressed to a point of magnitude superior to that available just brief years ago.” Commissioner Karmel added—around the advent of the word processor, mind you—that “although these developments have augmented the complexity and efficiency of the private financial sector, the SEC has not enjoyed all the benefits of this improved technology.” Her words were at once a warning and an enduring appeal for financial regulators to do a better job at keeping pace. We are resolved to answer that call by refusing to remain tethered to the tools or the temperament of a bygone era.
Commissioner Peirce and Brian Daly, Director of the Division of Investment Management, have suggested (subject to the standard disclaimer) in speeches at the Investment Company Institute (ICI) Investment Management Conference and ICI Winter Board Meeting, respectively, that the SEC eventually consider going 10 steps further than just making electronic delivery the default. These speeches focused on fund disclosure documents, but their descriptions of ways fund disclosures might become “interactive and personalized” are fascinating.
Thanks to this Wilson Sonsini alert for sharing the first Item 1.05 Form 8-K filed in connection with “shadow AI” (unauthorized AI use). Here’s the background from the alert:
On May 5, 2026, a Pennsylvania-based regional bank, Community Bank, the wholly owned subsidiary of CB Financial Services, Inc. (CB), detected a cybersecurity incident caused by the use of an unauthorized AI application which exposed sensitive customer information. Unlike the usual cybersecurity incident involving an attack on the company’s systems by a third-party bad actor or sabotage by an internal party, the exposure of confidential information in this case arose from the improper use of AI, presumably by a bank employee who turned to the unauthorized AI for efficiencies in handling customer information. Two days later, CB determined the incident was material and filed a Form 8-K under Item 1.05.
The alert says that this incident is a good reminder that:
– A cybersecurity incident need not involve an external attacker or system intrusion or material financial consequences to qualify as material under Item 1.05.
– Insider misuse of technology, including unauthorized use of AI tools, can independently trigger SEC disclosure obligations if the confidential information at risk is sensitive and extensive such that a company determines the incident is material.
Nasdaq’s proposal to impose a new $5 million minimum market cap requirement for continued listing, like a few other stock exchange proposals in recent years, has gone through a long process already. The SEC extended the time to act on this proposal back in March, and then the day before the Commission was required to take action, an order was posted instituting proceedings to determine whether to approve or disapprove the proposed rule change, soliciting additional comment on specific areas of concern. On Monday, the SEC posted a new notice to solicit comments on a revised proposal from Nasdaq.
We already shared some of the critical comments that had been received as of April. After that date, the Commission received comments from the Security Traders Association, Better Markets, OTC Markets Group, PTG, Securities Industry and Financial Markets Association, and Citadel, all in support of the initial proposal, and comments from law firms, three listed companies and the Small Public Company Coalition, all opposing.
In its amended proposal, Nasdaq addresses concerns by commentators by giving the Hearings Panel more discretion:
As a preliminary matter, Nasdaq acknowledges the position taken by some of the Objecting Commenters that some companies with a low market capitalization may meaningfully recover and therefore their continued listing on the Exchange maybe appropriate. Accordingly, in this Amendment No. 1, as described above, Nasdaq now proposes to modify the Initial Proposal, which would have prevented a Hearings Panel from reinstating a company that failed to maintain a minimum of $5 million MVLS. Instead, Nasdaq now proposes to adopt Listing 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 maintain MVLS of at least $5 million under Rule 5450(a)(3) or 5550(a)(6), the Hearings Panel where it deems appropriate, may 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.
Nasdaq believes that this approach appropriately balances the Exchange’s obligation to protect investors while allowing a company whose operational and financial difficulties are indeed temporary to demonstrate to an independent Hearings Panel that continued listing is appropriate. With this change, Nasdaq believes that the revised proposal addresses concerns raised by several commentators arguing that the Initial Proposal did not accommodate scenarios where situational factors result in temporary declines in a company’s valuation are unrelated to its actual financial health.
Nasdaq determined not to address other comments. For example:
– “Several commenters raised concerns regarding the removal of the automatic stay of suspension pending Hearings Panel review. Nasdaq continues to believe that immediate suspension from trading for a company that failed to maintain $5 million MVLS threshold over 30 consecutive business days is appropriate.”
– “Nasdaq also continues to believe that it is appropriate to issue a Staff Delisting Determination to a company for failure to maintain MVLS of at least $5 million over 30 consecutive business days.”
– “Nasdaq also continues to believe that providing a cure period is not appropriate where a company failed to maintain MVLS of at least $5 million over 30 consecutive business days.”
– “[S]everal commenters stated that the $5 million MVLS threshold, coupled with automatic suspension after 30 consecutive business days, could increase the potential for manipulative trading and market abuse in an effort to drive down the value of a company’s stock, causing a company to be delisted. Nasdaq notes that market manipulation is illegal. Nasdaq believes that if Objecting Commenters are in possession of evidence indicating that federal securities laws are violated, they should submit such evidence to the appropriate authorities for investigation and enforcement.”
Notably, this is not a notice of filing & immediate effectiveness. Comments on the amended proposal are due 15 days after publication in the Federal Register.
Apparently, the providers of the major AI models are actively moving from flat-fee pricing to usage-based, token pricing. It’s creating some challenges for IT budgets. And that means, as this Troutman Pepper Locke alert describes, that this shift may also have disclosure implications for public companies, especially for MD&A.
Since “increased expenses incurred with AI token costs” may have a material impact on a company’s financial statements, MD&A disclosure may need to address:
– The reason for period-to-period changes in operating costs, discussed in quantitative and qualitative terms, to the extent AI costs are already having a financial statement impact;
– Known trends or uncertainties reasonably likely to cause a material change in the relationship between costs and revenues if the pricing shift and AI adoption results in the two-part “reasonably likely” assessment being met;
– AI investments or token consumption as known trends, demands, commitments, events or uncertainties reasonably likely to impact the company’s liquidity; or
– AI usage metrics (like token consumption rates, per-employee spend or AI ROI), if tracked, as key performance indicators (KPIs) used to manage the business.
The accounting — and disclosure — may be different industry by industry or company by company:
Different companies may account for AI token costs differently. For example, some companies may account for token costs in costs of revenue, while others may account for them as general and administrative (G&A) costs. For other companies, AI token costs might be accounted for research and development (R&D) expenses. For example, AI has started to significantly affect biopharmaceutical and biotechnology companies by rapidly transforming the drug development process, enhancing and speeding target identification, molecular design, clinical trials optimization, and regulatory processes — these companies are likely to record AI token costs as R&D expenses.
With the second quarter about to close for calendar year companies, the alert suggests four steps companies should take as they prepare for their next 10-Q, including assessing the materiality of AI costs, evaluating the cost structure shift, reviewing internal AI monitoring and governance and coordinating across legal, finance and IT to assess disclosure requirements.
One upside from the fact that public companies have been required to file their insider trading policies as exhibits to their Form 10-K filings for the last two years is that we now have a lot more data on trends and a greater ability to benchmark policies against market practice and company peers. Goodwin recently reviewed policies filed during the 2025–2026 annual reporting season to assess how they approached some hot topics. This alert describes how the policies handle trading in other companies, the prediction markets, Rule 10b5-1 plan usage, gifts, trading windows (timing and covered employees/consultants) and pledging.
With respect to Rule 10b5-1 plans, Goodwin looked at whether the insider trading policies mandate the use of Rule 10b5-1 trading plans and whether they impose additional restrictions beyond those required by the rule.
With respect to mandatory usage, there is near unanimity across sectors that directors and executive officers are not required to conduct all transactions in company securities pursuant to a Rule 10b5-1 trading plan. With respect to additional restrictions, nearly all policies impose an advance notice period for internal review of proposed trading plans (e.g., at least five business days before adoption). It is also common for policies to include provisions that allow for the company to impose additional, unspecified conditions prior to approving a proposed plan, as well as to include a requirement that the plan must allow the company to direct the broker to suspend or terminate the plan under certain circumstances.
Beyond those relatively common provisions, approximately 25% of policies include additional restrictions. We did not observe a pattern across industries or market capitalizations. More common supplemental restrictions included:
– minimum and/or maximum term lengths for the plan (most common were six months and two years, respectively) – prohibitions on hedging transactions involving securities subject to the plan – limits on the number of plan amendments permitted during a 12-month period – cooling-off periods following voluntary plan terminations – restrictions on engaging in transactions outside an approved plan – limits on which individuals may utilize trading plans – requirements to use specific brokerage firm
On the treatment of gifts, they found that a consensus has emerged, with 85% of the reviewed policies requiring preclearance for gifts, though there were sector-specific outliers, including large-cap banks (73%) and pre-revenue life sciences companies (68%).
For our latest Timely Takes podcast, John was joined by Sean Dowd, a Partner and Managing Director in the Risk practice at AlixPartners, to discuss the results of AlixPartners’ 2026 U.S. Risk Survey, which analyzes the top risks facing U.S. companies right now, based on responses from 500 executives in legal, compliance and regulatory roles. In this 30-minute podcast, they discussed:
Trends driving continued growth in disputes
How AI, cyber incidents and deal activity are reshaping risk
What companies should do to implement effective AI governance
Navigating differing AI regulations across jurisdictions
Reasons why cyber and data privacy preparedness still lag
Redefining resilience against AI-driven cyber threats
Explaining the gap between data privacy best practices and execution
The rise in financial crime risk and decline in confidence of detection
Why preparedness for geopolitical and supply chain risk is declining
New risks and control gaps emerging with crypto use
If you’re interested in sharing your insights on a topic that you think would likely be of interest to members of TheCorporateCounsel.net or our other sites, we’d love to hear from you. You can contact me at mervine@ccrcorp.com or John at john@thecorporatecounsel.net.
Earlier this month, eleven U.S. Senators – all the Banking Committee Democrats – urged the White House to begin the process for nominating Democratic officials to the bipartisan agencies within the Committee’s jurisdiction, including the SEC. The letter written by Senators Warnock and Van Hollen argues:
Open-ended vacancies damage the leadership structure that Congress established for these agencies. A full slate of commissioners and board members can bring a range of perspectives to policies that shape our markets. But as the SEC, FDIC, NCUA, and EXIM now pursue consequential reforms across the economy and financial system, we are concerned that their lack of Democratic voices thwarts congressional intent. And while empty board seats are a pressing issue at a number of agencies, they are an especially important concern for the Committee, with several significant multi-member commissions within its jurisdiction.
For the SEC, the Senators point to reports that the Administration is preparing to nominate a new Republican to the SEC to replace Commissioner Peirce, without making any moves to fill the other two vacancies reserved for Democrats.
The White House is doing so despite the fact that the Securities Exchange Act mandates that SEC nominations alternate between parties “as nearly as may be practicable” and Chair Paul Atkins, a Republican, was the most recently appointed commissioner.
We should be clear: No practical barrier prevents the President from next appointing a Democrat to the SEC. If the President nominated a Republican to replace Commissioner Peirce without also nominating a Democrat to the SEC, he would violate the Securities Exchange Act.
By statute, the SEC is to be composed of five commissioners appointed by the President by and with the advice and consent of the United States Senate. Not more than three of such commissioners may be members of the same political party, and in making appointments, members of different political parties are required to be appointed alternately as nearly as may be practicable.
The SEC has been down to three commissioners, all of the same party, since early this year, and Commissioner Peirce will depart the agency in the fall when her term extension expires.
Last week on CompensationStandards.com, I blogged about the Delaware Chancery Court’s decision in Ayers v. Foley, which involved challenges to director compensation – both the compensation of all the non-employee directors and a special equity award to the company’s chairman. Vice Chancellor Will notes in the decision that “Delaware courts have yet to interpret” subsection (d)(2). Section 144(d)(2) is the newly added heightened presumption of disinterestedness for independent directors of listed companies. University of Colorado Law Prof Ann Lipton says on the Business Law Prof Blog:
With respect to the award to the board, the defendants conceded that this was an interested transaction, with no cleansing mechanisms, and demand was excused; the only argument they made was that plaintiffs’ complaint did not make it “reasonably conceivable” that the compensation was not entirely fair. That argument was a heavy lift, and VC Will rejected it; those claims will proceed. The real action concerned the grant to the company founder and chair.
For demand to be excused for the founder grant, she had to determine whether a majority of the board was disinterested. (Nine of 11 were determined by the board to be independent under NYSE rules.) So the novel question she had to tackle was whether Section 144(d)(2)’s new presumption of disinterestedness applies beyond Section 144’s purview (transactions with controlling stockholders and interested directors and officers) and, specifically, whether it applies to demand excusal. As Ann notes:
DGCL 144 does not in any way incorporate or reference [Court of Chancery] Rule 23.1 [governing pleading requirements for derivative actions.] It even uses different terminology than the caselaw developed under Rule 23.1: Rule 23.1 caselaw distinguishes between “independence” and “disinterestedness,” and while DGCL 144 clearly includes both concepts substantively, it combines them under a single rubric, “disinterest” [. . .]
On the other hand, from a judicial perspective, it is uncomfortable to have a definition of independence for cleansing purposes that is distinct from the definition of independence for the purposes of demand excusal, each of which is subject to a distinct particularity standard.
It is even more uncomfortable when you consider that demand excusal is, as a practical matter, an inquiry into whether a particular type of decision was cleansed – the decision whether to bring a lawsuit. That is, most potentially “interested” board decisions involve actual contracts – to buy something, to sell something, to grant compensation. In the demand context, it’s a different type of potentially interested board decision – the decision whether to sue. Either way, though, we’re talking about what is sufficient to cleanse that decision such that the court will defer to it. Viewed that way, there is no reason the cleansing procedures for the two – actual transactions/contracts, versus decisions whether to bring a lawsuit – should differ at all.
Ultimately, VC Will determined that the General Assembly intended the presumption to apply broadly, including to demand excusal. Ann says this raises the question of whether all of Section 144’s cleansing procedures apply to demand excusal, which could significantly affect the construction and use of special litigation committees.
– Harmonize, modernize, and streamline data reporting requirements in their regulation of the security-based swap and swap markets.
On definitions and interpretations, specific topics for public input include:
– Definitions relating to swaps and security-based swaps, including the scope of certain exclusions from the swap definition
– Treatment of mixed swaps
– Treatment of novel or emerging products
– Jurisdictional and interpretive questions
– Potential areas in need of greater clarity regarding regulatory definitional lines
– Potential areas for alternative compliance
For data reporting requirements, the joint request seeks input on:
– Harmonization across frameworks
– Transparency and data quality
– Operational complexity
– Standardized identifiers and reference data
– Implementation considerations
Both public comment periods will remain open for 60 days following publication of the request for comment in the Federal Register.
Harmonization of policies and practices between the SEC and the CFTC has been a focus of both agencies over the past year. The first big step toward harmonization was the signing of a historic Memorandum of Understanding to guide their coordination and collaboration, which Dave blogged about in March. A joint Interpretive Release clarifying the application of the securities laws to digital assets followed shortly thereafter. But these two requests for comment aren’t just about harmonization. As this Bloomberg article explains, they’re also about bringing regulatory predictability to prediction markets — especially as those markets look to expand into areas that would include securities.
