In addition to extending the period to act on recent market clean-up proposals, the SEC acted last week to approve Nasdaq’s proposal to allow for trading of “tokenized” securities during the pendency of the related DTC tokenization pilot program. Meredith blogged about Nasdaq’s original proposal last fall – it was later amended a couple of times to provide more detail about how the process works. Check out this January blog for key points about how the DTC pilot program works.
Here’s an excerpt from the SEC’s notice:
Nasdaq market participants that are eligible to participate in the DTC Pilot (“DTC Eligible Participants”) would be able to trade tokenized versions of certain equity securities and exchange traded products on the Exchange that are eligible for tokenization as part of the DTC Pilot (“DTC Eligible Securities”). According to Nasdaq, while they are actively assessing multiple methods of tokenization and trading of tokenized securities, the proposed rule change describes and applies to one method by which DTC Eligible Securities can trade on Nasdaq, using DTC to clear and settle trades in token form, per order handling instructions that DTC Eligible Participants may select upon entering their orders for DTC Eligible Securities on Nasdaq.
And:
Pursuant to the Nasdaq proposal, a tokenized share of a DTC Eligible Security must be fungible with, share the same CUSIP number and trading symbol with, and afford its shareholders the same rights and privileges as a share of an equivalent class of the traditional security for it to trade on Nasdaq. Further, Nasdaq has represented that it would trade DTC Eligible Securities “within the confines of existing securities laws and rules” and that its trading system and procedures, except as described above, would be the same regardless of whether a security is tokenized.
A tokenized share of a DTC Eligible Security and its traditional counterpart would trade on the same order book and with the same execution priority. Moreover, market data feeds would not differentiate between tokenized and traditional shares and market surveillance of tokenized and traditional securities would rely upon the same underlying data, which would continue to be accessible by Nasdaq and FINRA.
We’re posting memos about the pilot program and related issues in our “Crypto” Practice Area.
– Liz Dunshee
Talk about a long and storied career! Carl Hagberg started his career as an inspector of elections before handheld calculators existed, and he – and his son Peder Hagberg – are still going strong. As the Co-Editors of The Shareholder Service OPTIMIZER newsletter and magazine – as well as partners of CT Hagberg LLC, which has provided independent inspectors of election since 1992, Carl and Peder are a great source of info on tabulation issues, annual meeting procedures, and “who’s who” in the public company space.
So, as we head into annual meetings, this 35-minute episode of the “Timely Takes” podcast is living up to its name in being especially timely. Meredith was joined by Carl and Peder to discuss:
1. How Carl and Peder came to be experts on the proxy voting process
2. Risks for companies that exclude shareholder proposals in the absence of traditional no-action relief
3. Why this is the year to consider improving your virtual shareholder meeting practices
4. Bad, good, better and best practices for virtual shareholder meetings
5. How companies typically use the option to prerecord portions of the virtual meeting
6. Tips for engaging inspectors
7. How Carl and Peder are trying to improve retail vote turnout and how you can too
As always, if you have insights on a securities law, capital markets or corporate governance issue, trend or development that you’d like to share in a podcast, we’d love to hear from you. Email Meredith and/or John at mervine@ccrcorp.com or john@thecorporatecounsel.net.
– Liz Dunshee
Earlier this month, the Department of Justice announced its first-ever department-wide corporate enforcement policy, which applies to all corporate criminal cases.
The policy – formally known as the “Corporate Enforcement and Voluntary Self-Disclosure Policy” or “CEP” – is intended to promote consistency, transparency, and predictability and to incentivize voluntary self-disclosure and remediation. It supersedes all existing policies – but seems to incorporate many of their principles.
This Sullivan & Cromwell memo summarizes key changes from existing policies. As far as what the new approach means for companies, the S&C team shared these thoughts in their memo:
The new CEP now ensures that — with the exception of antitrust cases that have long been subject to the Antitrust Division’s unique leniency program — the concrete benefits of voluntary self-disclosure, cooperation, and remediation offered by the Department in corporate criminal cases are governed by a single, uniform policy. For companies facing potential criminal exposure under all other federal criminal statutes, the new policy brings a degree of predictability and consistency that did not exist under the prior regime, where the potential benefits and aggravating circumstances depended on which office or component was handling the matter. The benefits of the CEP are now available across the board, regardless of where a case lands.
The tradeoff is that the prior patchwork of component-specific policies offered companies some degree of flexibility and, in certain instances, more favorable terms. While the new Department-wide CEP makes several changes to the prior Criminal Division CEP, it hews closely to it, and companies can continue to look to precedent cases decided under prior policies to get a sense of what to expect going forward.
We’re posting lots of memos about this development in our “White Collar” Practice Area.
– Liz Dunshee
At PLI’s “SEC Speaks” conference last week, the Corp Fin Staff shared a status update on the disclosure review program, which had been significantly affected by last year’s record-breaking government shutdown. Here are a few key takeaways (based on our notes from the event and subject to the standard SEC disclaimers):
• The shutdown created a “pens down” situation where staff couldn’t review in-process filings – and by the time it ended, 1,000+ registration statements had accumulated, and of course more kept coming in after the government reopened. When the government reopened on November 13, it was taking about 70 days for the Staff to issue its first round of comments on initial registration statements.
• Now, time-to-first-comment is averaging around 30 days – closer to normal – with some reviews completing the first round under 30 days. In the time period from November 13 to March 19, the Staff processed initial round comments on over 600 filings – compared to just over 300 in the same period the prior year. Not only did they double the volume, they did it with a reduced headcount! People are working very hard.
• The annual review program under Sarbanes-Oxley Section 408 was paused to deal with the registration statement backlog, but it has now been restarted. The Staff will comply with the mandate, though the number of reviews will be lower than in prior years.
• Comment letter dissemination is approximately five months behind. That means that if you’re tracking comment letter trends or volume, the data will look artificially low, and you should know that it’s a function of the delay, not a reduction in comments. Staff is looking at ways to automate what is currently a manual process.
On that last point, one thing that slows down comment letter dissemination is the need to scrub personally identifiable information. If you’re submitting correspondence or exhibits, double-check for bank account numbers, addresses, and tax IDs before you file. Cleaning up on the front end helps Staff on the back end.
– Liz Dunshee
Be sure to tune in at 2 pm Eastern tomorrow for our webcast – “From S-1 to 10-K: Avoiding Disclosure Pitfalls” – to hear Tamara Brightwell of Wilson Sonsini, Brad Goldberg of Cooley, Keith Halverstam of Latham & Watkins and Julia Lapitskaya of Gibson Dunn share practical guidance on the most frequent disclosure and compliance challenges that newly public companies face – and offer insights into how to avoid the common missteps that can trigger SEC comments, investor scrutiny, and unnecessary risk. Our panelists will also address questions submitted by members in advance (the deadline was March 19th).
Topics include:
– Entering the Exchange Act Reporting Cycle
– Risk Factors, Forward-Looking Statements, and Earnings Communications
– Form 8-K Current Reports
– Form 10-K and Proxy Statement
– Mechanics of the First Annual Meeting
– SOX, Internal Controls, and Disclosure Controls in the First Year
Members of this site can attend this critical webcast (and access the replay and transcript) at no charge. Non-members can separately purchase webcast access. If you’re not yet a member, you can sign up for the webcast or a membership by contacting our team at info@ccrcorp.com or at 800-737-1271. Our “100-Day Promise” guarantees that during the first 100 days as an activated member, you may cancel for any reason and receive a full refund.
We will apply for CLE credit in all applicable states (with the exception of SC and NE, which require advance notice) for this 90-minute webcast. You must submit your state and license number prior to or during the live program. Attendees must participate in the live webcast and fully complete all the CLE credit survey links during the program. You will receive a CLE certificate from our CLE provider when your state issues approval, typically within 30 days of the webcast. All credits are pending state approval.
This program will also be eligible for on-demand CLE credit when the archive is posted, typically within 48 hours of the original air date. Instructions on how to qualify for on-demand CLE credit will be posted on the archive page.
– Liz Dunshee
I blogged earlier this week about proponents taking companies to court over decisions to exclude Rule 14a-8 shareholder proposals from the company proxy statement. Two of the three cases have now settled, with the companies agreeing to include the proposal in the proxy.
The NYC Comptroller announced its settlement yesterday – and emphasized that EEO-1 diversity disclosures are still an initiative:
In 2020, the Comptroller’s Office launched the successful Diversity Disclosure Initiative, encouraging America’s largest companies to voluntarily disclose their Consolidated EEO-1 Reports. The results have been overwhelmingly positive. As of 2025, roughly 80% of S&P 100 companies publicly disclose their Consolidated EEO-1 report, a comprehensive breakdown of the company’s workforce by race, ethnicity, and gender, an increase from about 14 in July 2020. The Comptroller’s Office, on behalf of the Funds, have reached agreements with major companies including the Home Depot, McDonald’s Corporation, Netflix, Nike, and Verizon Inc.
The disclosure of a company’s Consolidated EEO-1 Report is a cost-effective and meaningful way to provide investors with consistent information that allows for comparison of one company to that of its peers. Further, this disclosure imposes few if any additional costs on a company because companies like AT&T are already required to annually submit the report to the Equal Employment Opportunity Commission.
As I noted in my earlier blog, one factor to consider in exclusion decisions is whether the company has previously agreed to do the thing the proposal asks for – that appeared to be a factor in the NYC Comptroller case, even though the macro environment has shifted in the meantime. Another factor, apparently, is whether proponents will litigate – and that risk may be elevated now that there are two settlements on the books.
– Liz Dunshee
In other settlement news, Ross Kerber of Reuters reported yesterday that Vanguard had settled antitrust claims with Texas Attorney General Ken Paxton and other state AGs. Here’s more detail (also see this WSJ article):
Vanguard Group will pay $29.5 million and bolster its passive investing approach in order to settle a suit by 13 Republican state attorneys general claiming the fund manager and rivals violated antitrust law through their climate activism.
The suit in U.S. District Court in the Eastern District of Texas has been closely watched as a test of how far Republicans from energy-producing states would push Wall Street firms they accused of overemphasizing environmental matters.
BlackRock and State Street are co-defendants and aren’t part of the settlement. The claims were based on the investors’ membership in investor coalitions focused on climate change commitments, but the investors have already backed away from those. So, the settlement is premised on “passivity commitments.” Vanguard issued this statement – here’s an excerpt:
The terms of the agreement to settle this litigation reaffirm our longstanding practices and standards and the passive nature of our index funds. The settlement also recognizes our innovative Investor Choice program as a tool for empowering investors and bringing new voices into the proxy voting ecosystem. Investor Choice is the largest proxy voting choice program in the world, empowering 20 million index fund investors across more than $3 trillion1 in assets to make their voices heard.
It’s not entirely clear to me what “passivity commitments” means and whether it will affect how Vanguard votes. Maybe it just means the AGs are watching extra close and will swoop in if they see the asset manager support a climate-related shareholder proposal. At any rate, it’s worth noting that institutional investor support (or lack thereof) is another factor to consider in whether to put Rule 14a-8 shareholder proposals in the proxy.
– Liz Dunshee
The SEC’s 45th Annual Small Business Forum is coming up on Monday, March 9th from 1:00 to 5:00 pm ET. As Dave shared earlier this month, it’s happening at the SEC’s Headquarters – and there’s also a live webcast if you want to watch virtually. Here’s the registration page – for if you’re attending in person or want to be able to participate virtually.
The agenda includes a session on “Public Company Perspectives: Considerations for IPOs and Small Caps” – at 3:35 pm ET. That’s followed by a 25-minute “open mic” – not for jokes but for an audience opportunity to discuss policy recommendations. Email smallbusiness@sec.gov with your capital-raising policy ideas by noon on March 5th.
– Liz Dunshee
Brand new and very timely, this “AI Use by Lawyers” Handbook covers all sorts of terrain – from AI jargon to ethics, use cases, workflows, effective prompting, what to review before sharing AI content with clients – and much more. Brought to you by Meredith and Meaghan, it delivers 25 pages of practical guidance. If you just want to dive into the prompting basics & tips, check out the corresponding checklist.
Both of these resources are available in our “Artificial Intelligence” Practice Area.
– Liz Dunshee
Yesterday, an online prediction market platform announced that it has been actively investigating potential insider trading activity on its platform. To shed let on how it identifies violations and enforces its rules, it shared details from two cases it recently closed.
With prediction markets taking off, there has been a decent amount of commentary lately on whether there are guardrails to keep things fair. Analytical tools are even popping up to find unusual activity – not unlike how the SEC uses data analytics to flag suspicious trades. And with our members being so on top of things, it was only a matter of time before someone asked about it in our Q&A Forum. Here’s Question #12,966:
I had a question regarding the rise of the predictions market and possible interaction with the federal securities laws. Specifically, I am thinking about a public company’s Insider Trading Policy and whether we should be suggesting any changes to these policies to consider actions by employees/actors in predictions markets.
Of course, we know that SEC Rule 10b-5 requires a trade “in connection with the purchase or sale of any security”. I am pretty sure that participation in a predictions market is not a security.
I am thinking of CFTC’s Rule 180.1 which is modeled directly after Rule 10b-5, and prohibits “any manipulative device, scheme, or artifice to defraud” in connection with any swap or contract of sale of a commodity. Do you think there is reason to believe that prediction market contracts are classified as “commodity interests” rather than securities, that they may technically fall outside the SEC’s reach, and may be within the reach of the CFTC?
Indeed, the prediction market that made yesterday’s announcement about insider trading is regulated by the CFTC and referred the cases to that agency. Bloomberg’s Matt Levine explained it this way:
There is, perhaps, a three-tiered system of insider trading enforcement on prediction markets:
1. Kalshi itself bans insider trading, more strictly than the US stock market does; if you trade with any insider knowledge at all, and they catch you, they can ban you from the site and confiscate some of your money.
2. The CFTC bans insider trading on prediction markets, but less strictly than the stock market; the CFTC will only come after you if you have “misappropriated confidential information in breach of a pre-existing duty of trust and confidence to the source of the information.” But if they do come after you, they can probably do more to you than Kalshi can. (Bigger fines, banning you from exchanges other than Kalshi, etc.)
3. The US Department of Justice has some obvious interest in nontraditional insider trading, and has brought wire fraud cases against insider sports gamblers and insider nonfungible token traders. If the DOJ comes after you, they can put you in prison, which Kalshi can’t. I don’t know exactly what makes prediction-market insider trading a crime, though. In the sports gambling case, the DOJ argued that the insider bettors committed wire fraud by violating online sportsbooks’ terms of service, which seems like a stretch to me. But if that is the rule, then betting $200 on your own political candidacy, in violation of Kalshi’s rules, might also be a crime? It’s possible that the criminal insider trading rules cover more than the CFTC’s rules; it’s possible that the Justice Department would prosecute some trades that the CFTC would allow.
Here’s how John responded to our member’s question (in part):
That’s an interesting question. I’m far from an expert in commodities regulation, but it strikes me that some adjustment to existing insider trading policies may be advisable (or at least worth thinking about) in order to address insider trading in prediction markets. While the CFTC generally has jurisdiction over prediction markets, if they are used to manipulate securities markets, it’s my understanding that the SEC has the authority to get involved.
John also noted that the SEC has pursued “shadow trading” enforcement theories in the recent past, so perhaps there could be some tie-in to securities enforcement there (keep in mind that practice varies in terms of whether to prohibit shadow trading in company policy). At this point, though, it seems like the connection to securities trading is more indirect. So, for most companies, it may just be a matter of corporate policy – i.e., prohibiting employees from misusing confidential information. On the other hand, Bloomberg also recently reported this:
Roundhill Investments has asked the US Securities and Exchange Commission for permission to launch six ETFs that would let investors wager on US election outcomes through standard brokerage accounts — the most ambitious attempt yet to bring prediction markets into mainstream finance.
I’m not sure whether that changes things. This is a complex and evolving area, and I’ll look forward to hearing from someone who’s analyzed it more closely!
– Liz Dunshee
