At the end of last month, the SEC submitted its fiscal 2026 budget request to Congress. As SEC Chairman Paul Atkins said in his statement before the House Appropriations Subcommittee on Financial Services and General Government, the agency’s request for $2.149 billion for SEC operations is flat compared to both the FY 2025 and FY 2024 funding levels.
The budget anticipates approximately 4,100 full-time equivalents (FTEs), representing a net reduction of 447 FTEs compared to fiscal 2025 levels. Taking a look at the budget justification (thanks to the Daily Update from Securities Docket for highlighting!), it appears that the Enforcement Division is expected to be down to approximately 83% of its fiscal 2024 staffing levels, while Corp Fin staffing levels are expected to be around 86%.
Why then is the budget flat compared to prior years? Chairman Atkins’ statement notes that about $100 million is included in case the SEC absorbs the PCAOB’s functions:
At this lower FTE level, the budget request actually is approximately $100 million more than the amount that would be required to maintain our current state of operations. There is some uncertainty regarding the FY 2026 budget, including the potential transfer of the functions of the Public Company Accounting Oversight Board (PCAOB) into the SEC. If Congress approves this budget request, we anticipate that this funding could support such a transfer of the PCAOB functions into the SEC in FY 2026.
I was curious how this $100 million compares to the PCAOB’s current operating budget, so I Googled it. According to Reuters, the PCAOB’s 2025 budget was almost $400 million, which is not funded through the federal budget. It is funded by accounting support fees that would be eliminated by merging the PCAOB’s responsibilities into the SEC, meaning, as Dan Goelzer notes, future appropriations would be needed in perpetuity to support the SEC’s ability to do this work.
Early last week, I attended Northwestern’s Corporate Counsel Institute in Chicago. Programming kicked off with two panels — “Steady On: Strengthening the Board-GC Relationship and Maintaining Effective Board Governance through Times of Change” and “The Many Hats of the In-House Lawyer” — that discussed why and how GCs and Corporate Secretaries need to have black belts in relationship building. The panels highlighted some of the less glamorous aspects of being in-house counsel that can be surprisingly important to the uninitiated.
For example, the GC panelists described two of their lesser-known responsibilities and why they shouldn’t be written off as unimportant or administrative:
– Board driver: Sometimes your board members are stranded and need to be picked up at the airport, etc. These are excellent opportunities for more casual, one-on-one interactions with a director that don’t come around often. You should take advantage of them.
– Seating chart manager: The GC panelists said seemingly inordinate amounts of time go into setting the seating chart for board dinners. But, while this may seem purely administrative, it’s a key step in strengthening relationships for board members and management. They stressed the importance of making sure directors sit with members of management and rotate for each dinner. And that GCs need to make sure they are part of that rotation and getting the opportunity to sit near each director.
They also identified some times when the strength of the relationships you’ve developed with your directors and colleagues are especially important. For example:
– When you need to say no. Hopefully, you already have a reputation for being a “yes, but…” lawyer, but if you know you need to deliver bad news, get others aligned with your perspective before that meeting so you’re not the only one thinking about and raising risks.
– When a board member takes on a new leadership role. Two independent directors on the first panel stressed the importance of knowing that they could reach the GC — or hear back from them quickly — if they needed to discuss something, especially when taking on a new board leadership role. (They stressed that going from a committee member to a committee chair is a huge shift!)
– During director recruitment. A GC or Corporate Secretary who knows all the directors well will have invaluable insight on director candidates since he or she has a deep understanding of the board’s culture.
Finally, for something completely off-topic, if you find yourself with a reason to visit Chicago in the summer, take it! My trip was too short and mostly in conference rooms, but I was reminded of how special Chicago summers are. It inspired me to plan a return trip!
FINRA filings are about to get significantly more expensive! Under a rule change submitted last fall, they are going to phase in higher fees over the course of the next few years. FINRA doesn’t receive tax dollars – it relies on fees to fund its mission of regulating brokers. It’s been over a decade since some of the fees have last increased. Not surprisingly, FINRA says that the current fee structure isn’t keeping up with costs.
For Section 7 – which spells out the fees that apply to reviews of proposed underwriter arrangements for public offerings under FINRA Rule 5110 – FINRA is hiking the fee cap for non-WKSIs by 400%! Here’s more detail:
Section 7 of Schedule A to the FINRA By-Laws sets forth the fees associated with filing documents pursuant to the Corporate Financing Rule. It currently provides for a flat fee of $500 plus .015% of the proposed maximum aggregate offering price or other applicable value of all securities registered on an SEC registration statement or included on any other type of offering document (where not filed with the SEC), with a cap of $225,500; or a fee of $225,500 for an offering of securities filed with the SEC and offered pursuant to Securities Act Rule 415 by a Well-Known Seasoned Issuer (“WKSI”) as defined in Securities Act Rule 405. The fee associated with any amendment or other change to the documents initially filed with Corporate Financing is also subject to the current $225,500 cap.
FINRA has not raised the fee cap since 2012. FINRA is proposing to increase and modify the fee cap beginning in July 2025 as follows:
Corporate Financing Public Offering Review Fee Cap – Proposed Implementation
IPO
2024
2025
2026
2027
2028
2029
Non-WKSI
$225,000
$1,125,000
$1,125,000
$1,125,000
$1,125,000
$1,125,000
WKSI
$225,000
$270,000
$324,000
$389,000
$467,000
$560,000
This proposed rule change would raise the fee cap to $1,125,000, which would account for the significant growth in the size of offerings since the cap was last raised in 2012. However, for WKSIs, the cap would be raised to $560,000 over a period of five years. FINRA notes that raising the caps would also create more consistency with the SEC IPO review fee, which has no cap.
FINRA projects that increasing the cap as proposed would capture 81% of the incremental revenues if there were no cap while bounding the impact on WKSIs whose offerings tend to be less resource intensive for Corporate Financing to review. FINRA believes such fees are and would continue to be paid for by, or passed through to, issuers. When the proposed fee increase is fully implemented, it is designed to generate an additional $31 million in annual revenue by 2029.
In addition, FINRA is implementing a private placement review fee for private offerings that exceed $25 million and that use a registered broker-dealer. The cap for those fees is around $40k.
The new fees go into effect on July 1st. This Alston & Bird memo offers a couple important action items:
Issuers and FINRA members are advised to prepare for the implementation of these increased and new fees and consider their impact on future offerings from a budgetary standpoint and, in the case of private placements, to update expense reimbursement provisions of placement agent agreements (e.g., to ensure clarity regarding treatment of FINRA filing fees, which we expect would be reimbursable by the issuer outside any expense cap).
As I shared yesterday, the SEC is seeking feedback on whether it should amend the definition of “foreign private issuer” to better balance capital formation and investor protection. Meanwhile, the New York Court of Appeals recently delivered two decisions that are welcome news under state corporate law for foreign entities doing business in the U.S. This Cleary memo explains:
Both disputes posed the question whether New York’s Business Corporation Law (BCL) allows a shareholder plaintiff to bring derivative claims on behalf of a foreign corporation in New York so long as it satisfies the BCL requirements for such a suit, even if the plaintiff lacks standing under the law of the place of incorporation. The Court of Appeals rejected that theory and held that the BCL does not displace the well-settled internal affairs doctrine, which applies the substantive law
of the place of incorporation (not the law of the forum) to, among other things, the question of who has standing to assert derivative claims on behalf of the corporation.
Here’s Cleary’s takeaway (also see this D&O Diary blog):
In Ezrasons, the New York Court of Appeals emphatically endorsed the internal affairs doctrine and thwarted plaintiffs’ attempts to turn New York courts into unofficial arbiters of the internal corporate governance of corporations around the world. Foreign corporations and their boards should take comfort that they will not necessarily subject themselves to derivative suits in New York simply by doing business here. That said, it is important to note that shareholders still have some ability to bring derivative claims on behalf of foreign corporations if doing so is consistent with substantive foreign law and if plaintiffs can show that any contrary foreign law rule is merely procedural, not substantive.
Yesterday marked the 40th anniversary of Ferris Bueller’s day off. Brilliantly, it was also “field day” at my kids’ elementary school. Who else remembers these parachute games from their own childhood? Wishing you all a few carefree moments to enjoy baseball games, popsicles, and pool parties in the months ahead!
At its open meeting yesterday, the SEC announced publication of this 71-page Concept Release – which seeks feedback on whether the Commission should amend the definition of “foreign private issuer” to better balance investor protection and capital formation.
Dave has blogged about “the plight of foreign private issuers” – as recent rulemaking hasn’t afforded as many accommodations as FPIs might hope for. Yesterday’s 2-page fact sheet highlights that the FPI population has changed over the last two decades:
• The two jurisdictions most frequently represented among Exchange Act reporting FPIs in fiscal year 2003 were Canada and the United Kingdom, both in terms of incorporation and the location of headquarters. In contrast, the most common jurisdiction of incorporation for Exchange Act reporting FPIs in fiscal year 2023 was the Cayman Islands, and the most common jurisdiction of headquarters in fiscal year 2023 was mainland China. The Commission staff also found a substantial increase in Exchange Act reporting FPIs with differing jurisdictions of incorporation and of headquarters, from 7% in fiscal year 2003 to 48% in fiscal year 2023.
• The Commission staff found that the global trading of Exchange Act reporting FPIs’ equity securities has become increasingly concentrated in U.S. capital markets over the last decade. As of fiscal year 2023, approximately 55% of Exchange Act reporting FPIs appear to have had no or minimal trading of their equity securities on any non U.S. market and appear to maintain listings of their equity securities only on U.S. national securities exchanges. As a result, the United States is effectively those issuers’ exclusive or primary trading market.
In light of these changes to the FPI population, and in line with remarks that Commissioner Uyeda made almost exactly a year ago, the concept release seeks input on the following possible approaches to amending the FPI definition:
• Updating the existing FPI eligibility criteria;
• Adding a foreign trading volume requirement;
• Adding a major foreign exchange listing requirement;
• Incorporating an SEC assessment of foreign regulation applicable to the FPI;
• Establishing new mutual recognition systems; or
• Adding an international cooperation arrangement requirement.
The comment period will be open for 90 days following publication of the comment request in the Federal Register. You can submit comments here. Each of the Commissioners also published statements on the concept release, which provide more color on their views.
I blogged yesterday about the spike in “against” recommendations from ISS each June, for director votes and say-on-pay. In its initial look at how the “June phenomenon” applies to say-on-pay votes, Exequity looked at whether the voting trends could be explained by industry practices or pay-for-performance disconnects. Neither of those possible factors appeared to drive the trend. Exequity also looked at “repeat offenders” – which did seem to contribute somewhat to the spike, but only partially.
A member said they’d given it some thought, and pointed out that there could be another straightforward explanation:
Compared to April and May, the proportion of June meetings held by small- and mid-cap companies is higher. Those companies are more likely to have persistent material weaknesses in internal controls (a major driver of “withhold” recommendations on small-cap directors); and more likely to lack board diversity (which was a significant driver of withhold recommendations in prior years).
I’ve also noticed that in some cases, accounting issues, succession crises and other indicators of deeper problems are what cause the shareholder meeting to be delayed until June (if the company is non-timely in filing its 10-K, it may not be able to hold its AGM on the normal schedule, for example).
I’d also note that some smaller companies are less likely than their larger counterparts to make changes in response to a low say-on-pay vote – and that could drive adverse recommendations the following year – including against compensation committee members in some cases. Exequity’s “repeat offender” analysis took some of that into account and found it’s a contributing factor.
At any rate, in my experience, many small cap companies would love to have the luxury of worrying about ISS voting recommendations and AGM scheduling! Companies that geek out over a “spike” are probably not the ones affected by it…
Even though proxy advisors catch a lot of flak, my longstanding view has been that it’s actually helpful to have organizations that serve as the in-between on voting policies. On the issuer side, I’d rather keep track of a handful of policies than monitor variances across every single investor. You can also look like a hero if you really do understand the proxy advisor voting policies and can spare your company from surprises.
That’s one reason our “Navigating ISS & Glass Lewis” panel is always so popular at our annual “Proxy Disclosure & 22nd Annual Executive Compensation Conferences.” This practical session features a conversation with representatives from both proxy advisors – moderated by Davis Polk’s Ning Chiu. They’ll be covering the types of disclosures & practices that will (or won’t) help your cause on say-on-pay recommendations, compensation committee elections, and equity incentive plan approvals.
Our 2025 Conferences will be taking place Monday & Tuesday, October 21-22 in Las Vegas, Nevada, with a virtual option for those who can’t attend in person. Join us for engaging sessions full of essential and practical guidance, direct from the experts. Register now to lock in our early bird rate and save your seat!
If you track any of the “daily digests” for Staff comments, you might have noticed that the volume of Staff comments seems lower lately. It’s not always straightforward to estimate changes to comment letter practices, but Olga Usvyatsky recently took a stab at it in her “Deep Quarry” newsletter – and it appears the decrease for disclosure review comments wasn’t just in our imaginations. Here’s what she found:
Based on my analysis of the Audit Analytics data, 263 SEC reviews of periodic filings were released on EDGAR between January and April 2025 – a decline of 20% and 26% compared to the first four months of 2023 and 2024, respectively. However, it is unclear whether the decrease compared to the 2023-2024 level reflects a shift in SEC priorities or if this is merely a mechanical decline related to a lower number of reviews initiated in the second half of 2024.
The former explanation implies that the number of reviews is likely to revert to the 2020-2021 level, while the latter suggests we may see an even sharper decline on a full-year basis.
To arrive at these numbers, Olga compared the number of conversations with a closing letter on EDGAR during the applicable periods. Olga also shared data that shows a longer-term decline:
Over the past decade, the total number of SEC comment letter conversations referencing periodic filings has generally declined, with a peak in 2015 and a low in 2021, followed by a brief rebound through 2022 before declining again in 2024, according to a report by Ideagen Audit Analytics.
For the scoop on the comment letter process for both ’33 Act registration statements and ’34 Act reports, check out our 52-page handbook…
Over on CompensationStandards.com, I recently highlighted an interesting trend identified by Exequity: ISS’s adverse say-on-pay recommendations tend to spike in June. Exequity has now published additional data that shows this “June Phenomenon” also applies to director elections. Here’s an excerpt:
But the June Phenomenon for directors has an added twist: The trend of adverse recommendations in June appears to be increasing over time, whereas with say on pay the “Against” rate has been stable. In 2015 and 2016, the average rate in June was below 15%, and beginning in 2018, the recommendations “Against” have been above 20%. It is unclear what has caused the increase in “Against” recommendations during this time. Recommendations “Against” in other months have trickled up slightly, from 8% to 10%.
Unlike say on pay, votes for directors are not advisory and over the past 10 years, less than 0.1% of director nominations have failed. Failures in June appear equally likely as in other months, and Exequity finds no discernible trend in the number of companies with directors failing to be re-elected.
On average since 2015, directors have received 96% support when ISS recommends “For” and 83% when “Against.” Average support for directors when ISS recommends “Against” has trickled 1.7% higher since 2015 (from 82.4% in 2015 to 84.2% in 2025), but average support when ISS recommends “For” trickled down by 1.6% (from 97.6% in 2015 to 96.0% in 2024).
The cause of the June spike isn’t clear – and it’s probably not worth getting too neurotic over it. But with June being a popular time for annual shareholder meetings, a significant number of companies could be affected. Those with meetings this month may want to pay extra attention to proxy advisor expectations – if for no other reason than to avoid surprises.
