October 1, 2010

Mea Culpa: Proxy Access’s Lookback Test – March 13th, 2010 is the D-Day

Showing just how hard this blogging stuff can be, I am blogging a slight correction to my recent blog in which I complained how folks were coming to the wrong conclusion about which companies will have to deal with proxy access during the upcoming proxy season – and then I mentioned March 15, 2010 as the D-Day, which is technically incorrect.

Thanks to Todd Bloomquist of Winston & Strawn, who bothered to do the math and notes that “if a company mailed its proxy materials on Saturday, March 13, 2010, then the 120-day count would fall on November 13, 2010. Because November 13, 2010 is a Saturday, the proxy access notification window would actually be open for one day on Monday, November 15, 2010 under Instruction 1 to Rule 14a-11(b)(10).” In practice, I’m not sure it matters much because a quick Edgar search reveals that no companies mailed on that Saturday (so March 15th essentially is the threshold date in practical terms).

In erroneously pegging March 15th as the D-Day, I did what I think a lot of other folks have done – simply took the example provided by the SEC Staff during its open Commission meeting and moved the dates without thinking about how the weekend stuff would impact the calculation (in other words, few folks bothered to do the math themselves – I still haven’t!). Of course, this analysis is moot if the Business Roundtable and Chamber of Commerce are victorious in their motion for a stay of the effectiveness of the SEC’s new access rules (as I blogged about yesterday).

Trust me, it’s hard to blog daily and not occasionally get something wrong or offend someone accidentally. Particularly since most breaking news items come at the end of the day – and therefore the window to conduct research to ensure your analysis is correct is somewhat limited (and sometimes feels like a moving target). The community adds much more value than I possibly could alone – please keep it coming.

Thankfully my blogs have never been so controversial that I had to quit in order to protect my family, as recently happened to Prof. Todd Henderson of the “Truth on the Market” blog (see this Forbes blog).

More on “Dodd-Frank: SEC Removes Rating Agency Exemption from Reg FD”

A prime example of the challenges of blogging is how I needed to update my Reg FD piece yesterday morning to add some thoughts from Nancy Wojtas that I hadn’t seen anyone else muse about. In that updated blog, I noted the possibility that a Regulation FD obligation may be triggered if a rating agency were deemed to be acting as an agent of the issuer (I did call it a “stretch”). A member emailed these thoughts on that issue:

Even if a rating agency would be deemed an agent of the issuer, there should not be a problem, because the communication to the rating agency (as an agent) should be covered by the “trust and confidence” exception, and then the rating agency’s disclosures (at least for Moody’s, S&P and Fitch) would be FD compliant, since they always announce their ratings in press releases.

Rating agencies are not in the fourth category of covered persons under FD (a person “Who is a holder of the issuer’s securities, under circumstances in which it is reasonably foreseeable that the person will purchase or sell the issuer’s securities on the basis of the information.”) because of the requirements of being an NRSRO. Specifically, Section 15E(g) and Rule 17g-4 under the Securities Exchange Act of 1934 requires that NRSROs implement and maintain policies prohibiting its employees from inappropriately communicating information they learn when providing ratings services or engaging in transactions in securities (including derivatives) when they possess material, non-public informa┬Čtion or confidential information concerning the issuer of such securities. Thus, there is a reasonable basis for concluding that NRSROs and their employees would not be expected to trade securities based on information that issuers furnish an NRSRO.

Ironically, it was a prior Congressional action, the Credit Rating Agency Reform Act of 2006, that took rating agencies out of FD. That was the Act that amended the definition of investment adviser so that Section 2(a)(11)(F) of the Investment Adviser’s Act specifically excludes NRSROs (unless such organization engages in issuing recommendations as to purchasing, selling, or holding securities or in managing assets, consisting in whole or in part of securities, on behalf of others, which the major ratings agencies don’t). That was the same Act that created 15E(g) imposing the confidentiality requirements on NRSROs.

I do note that the few law firm memos I have seen so far on this topic vary in their analysis of this rule change – so I don’t feel so bad about needing to update my blog early yesterday. Note that if you read this blog via RSS feed or through Knowledge Mosaic (which populates its list of blogs thru RSS feeds), you likely are not reading the “final” product. I often tweak the blog once or twice right after it’s posted. You may be better off inputting your email address on the left side of this blog – which alerts you to when our daily blog is posted and you can read the genuine article.

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