As Dave blogged last month, the SEC is seeking candidates to join the Investor Advisory Committee, which advises the Commission on a wide array of issues. In this 12-minute podcast, I talked with JW Verret about his experience on the IAC – including:
1. What the SEC’s Investor Advisory Committee does, and how he got involved
2. Specific initiatives that he’s looking forward to seeing the IAC tackle in the upcoming year
3. His open call for comment on digital asset regulation – based on the IAC’s recent hearing on crypto
4. How the SEC uses the input that the Investor Advisory Committee provides
5. Suggestions for those who are interested in being appointed to the IAC, in response to the SEC’s call for candidates
One of JW’s suggestions for anyone interested in getting involved with the IAC is to watch the Committee’s open meetings to get a sense of what they do. Those are available via live webcast – and the next one is next Thursday, March 10th. The agenda includes departing remarks from JW as well as Paul Mahoney, who are both rotating off the IAC. The Committee will also discuss cybersecurity and other matters.
For this podcast, we have also posted a short transcript, to give our members an extra way to absorb the info. (If you aren’t yet a member, sign up by emailing sales@ccrcorp.com or calling 800-737-1271.)
– Liz Dunshee
I continue to team up with Courtney Kamlet of Vontier to interview women (and their supporters) in the corporate governance field about their career paths – and what they see on the horizon. Our latest episode is a 20-minute talk with Aon’s Laura Wanlass.
Laura shared her experience with creating & leading Aon’s Global Corporate Governance & ESG Advisory practice – and how an off-road navigation rally in the desert keeps her on track. If you want a nudge to pick up a hobby – or to just live vicariously through Laura – this episode is for you.
For even more about Laura, also check out this 2021 write-up on our Mentor Blog. Anyone who is interested in participating in our Mentor Blog interview series can email me with responses to these questions at any time. You can also encourage someone you know to participate, or even send me suggestions of people in the securities / corporate governance community who you’d like to learn more about. We would love to connect and elevate more members!
– Liz Dunshee
On Friday, the SEC announced a proposal that would increase public info of short sale data. Even though I’ve been mainlining news alerts for about 8 hours/day this past week, it has mostly been about war, sanctions, heroism & tragedy. So, this one slipped by me – especially because the SEC didn’t share its usual series of emails when it was issued (maybe our friends at the Commission were also focused on other things). Anyway, here’s the gist of it:
New Exchange Act Rule 13f-2 and the corresponding Form SHO would require certain institutional investment managers to report short sale related information to the Commission on a monthly basis. The Commission then would make aggregate data about large short positions, including daily short sale activity data, available to the public for each individual security.
The fact sheet explains that proposed Rule 13f-2 and the related proposed Form SHO are designed to fulfill the SEC’s Dodd-Frank mandate to make short sale data publicly available. It gives this additional detail on what would be required:
The proposed rule would require institutional money managers to file confidential Proposed Form SHO with the Commission via EDGAR, within 14 calendar days after the end of each calendar month, with regard to each equity security and all accounts over which the manager meets or exceeds either of the following thresholds:
● For any equity security of an issuer that is registered pursuant to Section 12 of the Exchange Act or for which the issuer is required to file reports pursuant to section 15(d) of the Exchange Act in which the manager meets or exceeds either (1) a gross short position in the equity security with a US dollar value of $10 million or more at the close of any settlement date during the calendar month, or (2) a monthly average gross short position as a percentage of shares outstanding in the equity security of 2.5 percent or more; or
● For any equity security of an issuer that is not a reporting company issuer as described above in which the manager meets or exceeds a gross short position in the equity security with a US dollar value of $500,000 or more at the close of any settlement date during the calendar month.
The information a manager would report includes:
● The name of the eligible security;
● End of month gross short position information;
● Daily trading activity that affects a manager’s reported gross short position for each settlement date during the calendar month reporting period.
The Commission would publish, based on information reported in Proposed Form SHO:
● The issuer’s name and other identifying information related to the issuer;
● The aggregated gross short position across all reporting managers in the reported security at the close of the last settlement date of the calendar month of the reporting period, as well as the corresponding dollar value of this reported gross short position;
● The percentage of the reported aggregate gross short position that is reported as being fully hedged, partially hedged, or not hedged; and
● For each reported settlement date during the calendar month reporting period, the “net” activity in the reported security, as aggregated across all reporting managers, within 14 business days of the calendar-month-end reporting deadline.
To supplement the short sale data, the release also proposes a new Rule 205 under Regulation SHO – which would require brokers to include new “buy to cover” marking on purchase orders if they have any short position in the same security at the time the order is entered. This amendment would expand on the markings currently required on the sales side for “long,” “short,” or “short-exempt” orders. The Commission also issued related proposed amendments to the consolidated audit trail under Rule 613 of the Exchange Act that would require CAT reporting firms to report the “buy to cover” info to CAT and to indicate where it’s asserting the “bona fide market making exception” under Regulation SHO. The idea with this fine-tuning to the order process is that it would help the Commission identify short squeezes and other abusive trading practices that may contribute to market volatility.
As this MarketWatch article explains, this proposal fits in nicely with SEC Chair Gary Gensler’s overall goal of market transparency. His supporting statement reinforces the goal of public visibility into short sale activity and the ongoing effort of the Commission to understand market volatility & stress – specifically, the role that short selling might play in market events. Commissioner Hester Peirce also issued a statement in support of the proposal. She’s interested in hearing from commenters whether these disclosure obligations are appropriate in light of the transparency objectives of Section 929X and the proposed rule and how they may affect trading strategies and market making activity in our markets.
The comment period runs until 30 days after the date the proposal is published in the Federal Register or April 26th – whichever is later.
Note, this is different than the rulemaking petition about short reports that John blogged about a few weeks ago. We’ll be posting memos about this proposal in our “Short Sales” Practice Area, where members can get all the info about what it means to companies.
– Liz Dunshee
Also on Friday, the Commission issued this 4-page release to reopen the comment period on proposed Exchange Act Rule 10c-1. That rule was proposed just before Thanksgiving last year. It wouldn’t directly impose obligations on issuers, but the info could be of interest. Here’s the original 184-page proposing release and the 2-page fact sheet. Here’s more detail:
Proposed Rule 10c-1 is designed to increase the transparency and efficiency of the securities lending market by requiring any person that loans a security on behalf of itself or another person to report the material terms of those securities lending transactions and related information regarding the securities the person has on loan and available to loan to a registered national securities association.
Although the original comment period just expired in early January, the Commission is formally re-opening it in light of the implications of proposed Rule 13f-2. The new comment period expires 30 days after the date the re-opening proposal is published in the Federal Register.
– Liz Dunshee
We have posted the March issue of our complimentary monthly email newsletter. Sign up today to receive it by simply entering your email address.
– Liz Dunshee
Warren Buffett’s annual letter to Berkshire Hathaway shareholders came out this weekend. Although he says there wasn’t much “new or interesting” at the company in 2021, there are a few nuggets worth noting in the letter and the annual report that it accompanies. The letter:
– Prominently touts the company’s substantial federal income tax payments as a good thing. Berkshire Hathaway paid $3.3 billion in corporate income tax in 2021 – a figure you’ll find at the front of Saturday’s letter rather than on the back page. Warren Buffett has been a long-time proponent of reinvesting in the business and paying taxes “at the office” versus on take-home taxable income. At a time when the tax obligations of billionaires and their businesses are drawing more national attention (and starting to be discussed as an “ESG” issue), Buffett emphasizes “the invisible and often unrecognized financial partnership between government and American business” and says Berkshire wouldn’t be what it is today if its operations weren’t based in the USA.
– Applauds Apple and its CEO Tim Cook for strong performance and share repurchase decisions that caused Berkshire’s percentage ownership to increase to 5.55%. That might be useful praise heading into Apple’s shareholder meeting this Friday, where the tech company faces 6 shareholder proposals and an adverse ISS recommendation on say-on-pay. Later in the letter, Buffett expounds on Berkshire’s own repurchase decisions.
Additionally, it appears that the Oracle of Omaha is coming around to the business benefits of planning for the net-zero transition. The letter plays up these environmental achievements:
– BNSF’s role in the American supply chain comes with an emissions advantage – “If the many essential products BNSF carries were instead hauled by truck, America’s carbon emissions would soar.”
– BHE has made the “societal accomplishment” of becoming a leading force in wind, solar & transmission – and the letter highlights previously-identified successor Greg Abel’s leadership role in that company’s transformation. Buffett takes a dig at “greenwashing” and brags that BHE has a lengthy history of making climate-conscious moves that soak up all of its earnings.
In a rare move, Abel also gets dedicated space in the company’s annual report. His Vice-Chair letter details annual GHG emissions from BHE and BNSF – and the 2030 targets for those two businesses – which represent more than 90% of Berkshire’s overall emissions. The 2030 targets are about 54% of the 2005 baseline (close to the “halving emissions by 2030″ goal that gained support after the IPCC report last summer). Abel’s letter highlights that BHE has invested in renewables while retiring coal plants and that it routinely communicates its approach to decarbonization. For more info on Abel’s background and the significance of his “sustainability” letter getting space in the annual report, check out this Bloomberg article.
Buffett’s letter ends with a plug for the company’s “annual gathering of capitalists.” This year’s incentives to attend include a discount on a “cousin” Jimmy Buffett-designed pontoon party boat that is manufactured by a Berkshire subsidiary. At a time when other companies are elbowing for positive attention & turnout from retail shareholders, Warren Buffett’s ability to connect the dots in a straightforward way seems to be a continued formula for success.
– Liz Dunshee
Supply chain disruptions continue to grow. Last week, the largest international logistics company in the US shut down most of its operations after announcing a cyberattack (see reports by ZDNet and the WSJ). This follows several supply chain attacks over the past few months – including a ransomware attack on Switzerland’s Swissport airport management services and a data breach that affected Germany’s billion-dollar logistics firm Hellman Worldwide – along with chatter from cyber-criminals last fall that they have access to networks for companies in the supply chain and are targeting that sector.
This is one of those areas where if you have been informed of a specific issue, your risk factors need to be tailored accordingly. So, do your procurement folks know to keep you in the loop? Do you have a sense for what type of disruption would warrant discussion with your board? As Dave blogged last week, the Russian conflict also means that cyber threats have grown to unprecedented levels for companies and the infrastructure that we all rely on. Preparedness for different types of scenarios is key.
– Liz Dunshee
Tune in tomorrow from 2-3pm EST for our PracticalESG.com webcast – “Shareholder Engagement: Fallout From the ‘ESG’ Tsunami” – featuring RLB Governance’s Rhonda Brauer, Close Consulting Group’s Tamara Close, Freshfields’ Pamela Marcogliese and Georgeson’s Hannah Orowitz. Shareholders have become more vocal than ever about ESG issues. The question now is, what should companies be thinking about before & after they commit to action? These experienced practitioners will discuss the “next steps.” Directors elections may be at risk if companies fail to show responsiveness, so it’s important to get this right!
Members of PracticalESG.com are able to attend this critical webcast – and access the transcript afterwards – at no charge. If you’re not yet a member, subscribe now by emailing sales@ccrcorp.com or calling us at 800.737.1271. If you sign up for a membership today, you can also receive 25% off the regular pricing. Don’t delay – this introductory promotion ends next week.
– Liz Dunshee
Even before SEC Chair Gary Gensler was officially confirmed to his current office, people were predicting that Section 13(d) reform would be high on his list of priorities. Yesterday, the SEC announced that it is proposing amendments to Regulation 13D-G. If adopted, the primary impact of the amendments would be to accelerate the filing deadline for Schedule 13D and 13G reports – to address the concern over “information asymmetry” that John blogged about last month.
This is a welcome development for the contingent of folks who think the current rules are outdated – see this 2011 WLRK petition, for example. If this proposal is adopted, it’ll be the most significant amendment to Regulation 13D-G since the rules were adopted in 1968.
Here’s the 193-page proposal – and here’s the 2-page fact sheet. The fact sheet explains that the proposal would:
– Accelerate the filing deadlines for Schedules 13D and 13G beneficial ownership reports – generally, from 10 to 5 days for Schedule 13D and from 45 days from the end of the year to 5 business days from the end of the month for Schedule 13G;
– Expand the application of Regulation 13D-G to certain derivative securities;
– Clarify the circumstances under which two or more persons have formed a “group” that would be subject to beneficial ownership reporting obligations; and
– Require that Schedules 13D and 13G be filed using a structured, machine-readable data language.
Chair Gensler issued a statement in support of the proposal. But not everyone is celebrating. Commissioner Peirce, who doesn’t share the view that information asymmetry is a problem in this context, issued a dissenting statement. We’ll be posting memos about this proposal in our “Schedules 13D & 13G” Practice Area. Comments are due 30 days after publication in the Federal Register or April 11th, whichever is later.
– Liz Dunshee
Also yesterday (and on the heels of our excellent webcast from earlier this week about whistleblower policies & procedures), the SEC announced that it had issued proposed amendments to two whistleblower program rules. From the fact sheet:
The SEC is proposing two amendments to Exchange Act Rules 21F-3 and 6, the rules governing its whistleblower program:
– The first proposed amendment would allow the Commission to make an award for a related action that might otherwise be covered by an alternative whistleblower program even where the alternative whistleblower program has the more direct or relevant connection to the related action in certain circumstances.
– The second proposed amendment would affirm the Commission’s authority to consider the dollar amount of a potential award for the limited purpose of increasing the award amount, but would eliminate the Commission’s authority to consider the dollar amount of a potential award for the purpose of decreasing an award.
As expected (and previously criticized by Commissioner Peirce and former Commissioner Roisman), this proposal revisits whistleblower program rules that were most recently amended in late 2020. So, it’s not surprising that Commissioner Peirce dissented. Chair Gensler issued a supporting statement to say that the amendments will provide reassurance to prospective whistleblowers. We’ll be posting memos in our “Whistleblowers” Practice Area. Comments are due 30 days from the date of publication in the Federal Register or April 11th, whichever is later.
– Liz Dunshee
