December 19, 2011

SEC Reconsidering 17 Rules for Small Business Impact (Including Reg FD and Insider Trading Rules)

As Vanessa Schoenthaler blogged in her “100 F Street Blog,” the Regulatory Flexibility Act of 1980 requires federal agencies to review those rules that “have a significant economic impact upon a substantial number of small entities … to determine whether [they] should be continued without change, or should be amended or rescinded … [in order] to minimize any significant economic impact … [on] such small entities.” Reviews must be undertaken within ten years of a rule being adopted. Last week, the SEC published this list of 17 rules that will be reviewed over the next year.

By the way, note that this is a required regular exercise for the SEC – for example, here is its 2010 list, 2009 list and 2000 list

Yesterday, the WSJ ran this piece entitled “Can Annual Reports Save Lives?” that is about the SEC’s conflict minerals rulemaking…

SEC Chair Discusses the Coming Beneficial Ownership Rules Overhaul

In this speech last week, SEC Chair Mary Schapiro gave us a few broad parameters of what the agency’s overhaul of the beneficial ownership reporting rules might look like (the speech also addresses proxy plumbing, proxy access, say-on-pay, etc.). Here is what she said on that topic:

Next year, we plan to begin a broad review of our beneficial ownership reporting rules. We think it’s important to modernize our rules, and we are considering whether they should be changed in light of modern investment strategies and innovative financial products.
Issues that we will consider include:

– Whether the 10-day initial filing requirement for Schedule 13D filings should be shortened;
– Whether beneficial ownership reporting should be changed with respect to the use of cash-settled equity swaps and other types of derivative instruments;
– How the presentation of information on Schedules 13D and 13G can be improved.

The Dodd-Frank Act has provided the Commission with new statutory authority to shorten the 10-day filing deadline for 13D, as well as to regulate beneficial ownership reporting based on the use of security-based swaps. And, earlier this year, the SEC received a petition for rulemaking recommending amendments to Regulation 13D-G.

The petition asks the SEC to broaden the definition of beneficial ownership to include interests held by persons who use derivative instruments. The petition also specifically requests that the time period within which initial beneficial ownership reports must be filed be shortened to one calendar day because technological advances have rendered the 10-day window obsolete.

Many feel that the 10-day window:

– Results in secret accumulation of securities;
– Results in material information being reported to the marketplace in an untimely fashion; and
– Allows 13D filers to trade ahead of market-moving information and maximize profit, perhaps at the expense of uninformed security holders and derivative counterparties.

In response, some argue that:

– Tightening the timeframe may reduce the rate of returns to large shareholders, and thereby result in decreased investments and monitoring of and engagement with management;
– There is no evidence that changes in trading technologies and practices have led to significant increases in pre-disclosure accumulations of large ownership stakes; and that
– State law developments, such as the validity of poison pills, staggered boards and control share statutes, have tilted the regulatory balance in issuers’ favor.

Our first step will likely be a concept release given the controversy surrounding some of the issues.

Shareholder Proposals: Corp Fin Supports Staff’s Exclusion of Auditor Rotation Proposal

As I blogged a few weeks back on our “Proxy Season Blog,” the Carpenters Union had asked for a reconsideration of the Corp Fin Staff’s decision to allow the exclusion of the labor fund’s auditor rotation proposal at Deere & Company. Last week, Corp Fin decided to side with its Staff and allow the exclusion and not kick it up to the Commissioners…

– Broc Romanek