Yesterday, the Corp Fin Staff again waded into the murky waters of Schedule 13G eligibility and issued three new CFIs addressing the impact of certain engagement scenarios on an investor’s ability to report its holdings on Schedule 13G. These are set forth in their entirety below:
Question 103.13
Question: An issuer requests a meeting with a shareholder to discuss the shareholder’s views or voting decisions on matters that either were submitted for a vote at a past shareholder meeting or will be submitted for a vote at an upcoming shareholder meeting. If the shareholder reports its beneficial ownership of the issuer’s securities on a Schedule 13G in reliance on Rule 13d-1(b) or Rule 13d-1(c), can the shareholder participate in such a discussion without losing its eligibility to report on a Schedule 13G?
Answer: The context in which an engagement occurs is highly relevant to the determination of whether a shareholder is holding securities with a disqualifying purpose or effect of “influencing” control of the issuer. Generally, (1) an engagement initiated by the issuer itself or (2) a response to an issuer’s request to understand why the shareholder voted in a certain manner at a past shareholder meeting is less likely to be viewed as an attempt by the shareholder to “influence” control of the issuer. Therefore, participation in such a discussion would not, by itself, disqualify a shareholder from reporting on a Schedule 13G. The determination is based on all the relevant facts and circumstances. [September 2, 2026]
Question 103.14
Question: Can a shareholder reporting its beneficial ownership on a Schedule 13G in reliance on Rule 13d-1(b) or Rule 13d-1(c) participate in discussions with a person engaged in a proxy solicitation with respect to a particular issuer without losing its eligibility to report on a Schedule 13G?
Answer: The fact that a shareholder discusses its views on a particular topic and how those views could inform its voting decisions with a person engaged in a proxy solicitation would not, by itself, disqualify the shareholder from reporting on a Schedule 13G. [September 2, 2026]
Question 103.15
Question: A shareholder reporting its beneficial ownership on a Schedule 13G in reliance on Rule 13d-1(b) or Rule 13d-1(c) reviews the disclosures in an issuer’s filings, such as its proxy soliciting materials, and seeks clarification about particular facts or statements asserted in the filings. Would the shareholder lose its eligibility to report on a Schedule 13G if it contacts an issuer and seeks such clarification?
Answer: No. A shareholder would not be disqualified from reporting on a Schedule 13G solely because it engages with an issuer to better understand the issuer’s disclosures or other public communications. [September 2, 2026]
The last time Corp Fin issued CFIs relating to the topic of how communications by an investor might affect its Schedule 13G eligibility, everybody sort of freaked out, and institutional investors became more cautious when engaging with issuers. The tone of these CFIs is clearly different than the last batch, and hopefully the guidance they contain will help encourage a somewhat more open approach.
I think we’ve all seen some ham-fisted efforts by public companies to downplay bad financial news. This is always a bad idea – among other things, it frequently leads investors to conclude that the company and its management team are insulting their intelligence. Over on RealTransparentDisclosure.com, Broc recently blogged about this topic. This excerpt highlights examples of practices that companies should avoid when conveying bad news to investors:
– Serial, italicized, headline subtitles that refocus attention away from key financial results
– Overemphasis upon non-GAAP results, and even discussing them to the exclusion of GAAP results
– Introducing completely new reporting metrics – just for the quarter – to highlight data that might distract investors from the poor results
– Long-winded CEO quote setting forth how “unbelievably excited” they are about some of the “extremely transformative” things the company is working on that make them “incredibly optimistic”
– Changing the comparative reporting periods to opportunistically highlight sequential results, since the year-over-year comparisons are bad
– Lengthy, bullet-pointed lists of “business highlights” that are predominantly comprised of immaterial information
– Introduction of new initiatives that investors don’t hear much about thereafter
Broc says that the only way to deal with bad news is to confront it head on. I couldn’t agree more. If you don’t, the downside isn’t limited to investors feeling like you’ve insulted their intelligence. Investors know they aren’t stupid, but antics like these may well cause them to reach a different conclusion when it comes to your management team.
Over on The Cooley Capital Xchange Blog, Liz recently addressed the implications of the changes to Nasdaq’s trading halt rule made as part of the implementation of 23/5 trading. This excerpt summarizes the expanded rule:
The amended rule builds on the mandatory trading halt framework that already exists for reverse stock splits – extending it to eight specified categories:
1. trading symbol/ticker changes
2. CUSIP changes
3. Stock dividends valued at 25% or more of the Nasdaq official closing price on the day immediately preceding the ex-date (whether payable in cash, stock, another security or a combination)
4. Forward and reverse stock splits
5. DeSPAC transactions
6. Spinoffs
7. Changes to the form, type, class or designation of a listed security
8. Mergers or other mandatory exchanges
Additionally, a “catch-all” category applies when Nasdaq determines that another corporate action or issuer-related event requires a trading halt to protect investors or maintain fair and orderly markets.
When one of these actions or events occurs, Nasdaq will implement a trading halt after post-market hours end at 8:00 pm ET and before the 9:00 pm ET night session begins. This will happen on the day before the market effective date of the corporate action. Trading will resume at 8:00 am ET on the market effective date
Liz goes on to point out that the rule doesn’t change existing notice and public disclosure requirements for listed companies, including notification requirements applicable to reverse stock splits, dividends and distributions, and changes in ticker symbols.
Liz suggests that companies update checklists and existing processes for corporate actions to identify those that may trigger trading halts early on. She says that companies should also map out the full timeline for a particular action with their transfer agents, Nasdaq & other intermediaries to confirm key notice and disclosure deadlines, and prepare to respond to investor questions about a trading halt.
On a related note, yesterday the SEC announced the agenda and participants for its Sept. 17th roundtable on preparing for 24-hour trading.
Yesterday, the SEC announced proposed rules intended to modernize the regulatory scheme for registered transfer agents. Here’s the 421-page Proposing Release and here’s the two-page Fact Sheet. This excerpt from the Fact Sheet says that the proposal would make the following changes:
– Amend the registration and annual reporting requirements for transfer agents, including the questions and instructions on Forms TA-1 and TA-2.
– Modernize the rules to reflect how transfer agents carry out their activities in light of technological advancements, including the use of electronic and blockchain-based recordkeeping and uncertificated securities.
– Establish new requirements related to turnaround, risk management, and inactive securityholders.
– Introduce two new rules addressing compliance and restrictive legends for registered transfer agents.
The proposed rule addressing restrictive legends is likely to be the most interesting part of the proposal for securities lawyers. The rule would require transfer agents to establish a reasonable basis for removing restrictive legends on a security, and would also create a safe harbor for establishing the existence of such a reasonable basis. Fitting into that safe harbor is where things get interesting.
The proposal offers two potential routes to that safe harbor (see the discussion beginning on p. 206 of the Proposing Release). One would permit the transfer agent to rely on its own efforts, but that would require the transfer agent to jump through several documentation and due diligence hoops. The second alternative would allow the transfer agent to rely on an opinion of counsel, but that opinion must be rendered by “counsel who is not an affiliate, officer, director, or employee of either the issuer or the individual or entity seeking to resell shares of the issuer.”
That language suggests that a transfer agent couldn’t fit into the safe harbor by relying on an opinion from the issuer’s in-house counsel. While I think it’s more typical for outside counsel to render these opinions, I know some public companies look to their in-house team to handle them. I also know that there have been some enforcement actions against lawyers who’ve rendered questionable legend release opinions, but I’m not aware of any involving in-house counsel, and this seems like overkill to me.
In either case, the transfer agent must also not be aware of any “red flags” with respect to the transaction for the safe harbor to apply. Examples of potential red flags are set forth on p. 205 of the Proposing Release. While some are clearly problematic (e.g., incomplete or non-existent issuer SEC filings, inconsistent financial information and altered charter documents), others seem less clear-cut (e.g., issuers with several business combinations or large reverse stock splits) and, without further clarification, may invite skittish transfer agents to see ghosts.
Ernst & Young had a much improved result in its latest PCAOB inspection. According to the PCAOB’s report, EY’s Part I. A. audit deficiency rate declined from 28% in 2024 to 5% in 2025. This excerpt from a CFO Dive article says that the firm believes its investments in technology, including AI tools, had a lot to do with the improved results:
For EY, the turnaround was the “direct result” of a $1 billion investment in technology and talent to “increase audit quality, including expanded use of AI and advanced analytics, continuous learning, and shifting work so teams focus on the areas requiring the highest levels of judgment and insight,” the firm said in an emailed statement.
The technology changes focused heavily on standardizing and simplifying the audit process globally, [EY Americas CTO Richard] Jackson said.
EY also worked to eliminate unnecessary audit steps and concentrate more closely on procedures tied to key risks, while investing in employee training and compensation.
Interestingly, the article says that the inspection results don’t reflect additional investments in generative and agentic AI tools that the firm introduced this year.
It’s also worth noting that the inspection report showed significant drops in the deficiency rates among the other Big Four firms. KPMG’s deficiency rate dropped from 20% to 13%, PwC’s dropped from 16% to 9%, and Deloitte’s dropped from 14% to 9%. The article doesn’t mention the extent to which tech and AI investments played a role in the other firms’ improved results, but it’s hard to imagine they didn’t.
If you’ve served as underwriters’ counsel for an IPO, you are well aware that several FINRA rules come into play during the IPO process. If you haven’t been involved in many IPOs or you’ve served only in the capacity of issuer’s counsel, then you may not be as familiar with some of the FINRA compliance hurdles your underwriters and their lawyers have to contend with. If you fall into this latter category, then this King & Spalding memo addressing FINRA’s public offering rules is worth your time. Here’s the intro:
This note provides an overview of important FINRA and SEC rules that companies and underwriters should consider in connection with US initial public offerings (IPOs) of equity securities. The discussion regarding FINRA rules focuses on four related areas: the Corporate Financing Rule (Rule 5110), which regulates underwriting terms and compensation; the Conflict of Interest Rule (Rule 5121), which regulates offerings of securities that are subject to a conflict of interest; and the two IPO Allocation Rules: the New Issue Rule (Rule 5130) and the IPO Allocation Rule (Rule 5131). The note also highlights the recent amendments to Rule 5110 that were recently approved by the SEC in 2026, and their potential implications for IPO planning and execution.
The memo also discusses the SEC’s registered offering reform proposal and its implications for the IPO process.
The latest installment of Glass Lewis’s 2026 Proxy Season Global Trends Report has some interesting findings about board oversight of cybersecurity and AI in the US & abroad. The report found that board oversight of cyber at large cap companies is almost universal, and that while defined board oversight of AI is ramping up quickly, it still lags cyber. This excerpt has the details:
– In both the UK and Continental Europe, clear attribution of cybersecurity oversight has become standard practice, disclosed by over nine in ten large cap companies.
– Board oversight of AI is less established but is catching up quickly, present at around seven in ten large cap companies in Europe – a significant increase from the previous year.
– More than half of Continental European large caps have an AI policy in place, up from around one in five in 2025. Over four in ten UK companies have done the same.
– In the U.S., board oversight of cybersecurity issues is similarly well established among Russell 1000 companies with AGMs through June 2026, disclosed by nearly nine in ten and largely consistent with 2025.
– AI policies remain less prevalent but appear to be rising, with approximately 21% of Russell 1000 companies with AGMs through June 2026 having an AI policy in place, an increase from around 15% in 2025.
In addition to addressing cyber and AI oversight activities, the report discusses shareholder voting trends in board elections, and trends in board gender and ethnic diversity.
The Harvard Governance Blog recently republished an article from EY’s Center for Board Matters identifying seven questions that boards should be asking following the 2026 proxy season. Three of those questions focus squarely on the board’s role in overseeing emerging technologies and the impact of those technologies on corporate disclosures:
Do we have the right structure to oversee technology? Technology committees are on the rise. Now 17% of S&P 500 boards have one, up from 15% in 2022 and 10% in 2018. That doesn’t mean standing up a technology committee is the right choice for every board. In fact, most companies have expanded the purview of existing committees — usually the audit committee — to oversee technology matters like AI and cybersecurity.
While nominating and governance committees weigh various factors selecting the committee structure and responsibilities that work best for their board, one reality cuts across all models: with AI transforming business, effectively overseeing technology’s impact on strategy and risk and communicating that oversight approach to stakeholders is a growing imperative.
How are we building and communicating our board’s AI acumen? One theme from our conversations with investors is that they want a clearer view into how boards are executing oversight of AI and technology more broadly. That includes how boards are gaining the skills and experiences needed to oversee AI strategy and risks. More companies are responding by highlighting the relevant experience of board members. This season, 37% of S&P 500 companies cited AI experience for at least one director, up from 11% in 2022. Overall, the percentage of S&P 500 directors with AI experience cited in the proxy has increased from 1% in 2022 to 5% in 2026.
But effective oversight depends on more than tech credentials, especially with how fast technology is changing. Board members should also consider how disclosures reflect the ongoing education, training and independent external perspectives they’re securing to build the full board’s AI acumen and keep pace with new developments.
Are our disclosures fit for AI-enabled stewardship? Investors are increasingly using AI tools to review disclosures, compare companies and inform voting decisions (though not to make voting decisions, yet). That means companies must adapt their disclosures with both human and machine readers in mind and prepare for a new depth of questions from investors in engagement.
Important information should not be buried in formats that AI tools struggle (for now) to interpret, and companies should recognize that investors can now analyze filings with a level of rigor at a scale that was previously impossible. As one investor told us: “there is no hiding in the footnotes anymore.”
AI is also enabling investors to scrape and assess vast amounts of unstructured data, from skills in job postings to employee reviews, and compare that external picture against company disclosures. As a result, it is more important than ever that companies understand the narrative AI may construct and make sure it aligns with the narrative they intend to tell.nbsp;
Other questions identified by the article relate to more traditional topics, such as changes in the company’s approach to shareholder proposals, identifying vulnerable directors, ensuring that the company’s engagement approach reflects current realities, and what proxy voting results don’t tell boards about investor views on executive pay.
The article says that this year’s relatively calm proxy season masked the extent to which ongoing regulatory, legal and technological changes are making it more difficult for boards and management to assess investor views and priorities, thus leaving them less prepared to deal with surprise vote outcomes and shareholder activism.
Yesterday, the SEC announced that it had entered into a Memorandum of Understanding with the FDA “designed to assist the agencies in carrying out their respective missions of ensuring the integrity of the financial markets and protecting public health.” Here’s an excerpt from the SEC’s press release:
The MOU establishes a framework for the agencies to enhance cooperation in their regulatory and enforcement responsibilities in order to improve market oversight and compliance. Among other things, the MOU includes information-sharing protocols to facilitate the exchange of information between the SEC and FDA that is relevant to both agencies’ important missions.
“FDA-related disclosures by public companies have a significant impact on our markets,” said SEC Chairman Paul S. Atkins. “The FDA is a valuable partner in our efforts to administer and enforce applicable disclosure requirements under the federal securities laws, and I look forward to further strengthening our partnership through the MOU.”
The MOU will remain in effect for three years and may be extended by the agencies.
The SEC managed to get several rulemaking projects off its desk and on to the OIRA website in advance of the upcoming Labor Day holiday. In addition to the long-anticipated proposal on executive comp disclosure reform that Dave blogged about last week, OIRA added two more SEC proposals to its dashboard on Friday.
The first proposal is currently titled “Shareholder Proposal Modernization,” but in case you’re wondering what the SEC intends to do with shareholder proposals, the dashboard includes the following statement: “we request the title appear on reginfo.gov as “Rescission of Rule 14a-8’s Federal Regulation of Shareholder Proposals and Amendments to Rule 14a-4.” Yeah, I think we can pretty much count on participants in the shareholder proposal industry moving immediately to DEFCON 2 on this news.
The second proposal to hit OIRA’s website on Friday is currently titled “Amendments to Certain Proxy Rules.” The dashboard says that SEC also wants to change the title of this proposal to “Proxy Solicitation Modernization,” and its description says that Corp Fin is considering asking the Commission to “propose amendments to modernize certain rules regarding the proxy solicitation process, including certain filing and procedural requirements relating to proxy solicitations and shareholder meetings, to reduce costs and compliance burdens.”
Like the executive comp proposal, these two proposals appeared on the latest edition of the SEC’s Reg Flex Agenda and targeted an October 2026 date for their release. It looks like the SEC’s on track to hit that date, and we’ll be ready to address any proposals that are issued during our Proxy Disclosure and Executive Compensation Conferences to be held on October 12th and 13th in Orlando. In case you needed another reason to register now, I think the SEC just gave you three!
I also want to give a tip of the hat to all of the members who took time out from their weekends to reach out to us to make sure we were aware that these proposals had been posted to the OIRA site. Much appreciated!
