As this Nasdaq First Quarter Review & Outlook notes, the first quarter of 2025 was a rough one for the stock market, as the period was marked by “significant economic, geopolitical and market turbulence in the United States.” The piece notes that the S&P 500 registered its worst quarterly performance since the third quarter of 2022, correcting more than 10% in the latter half of the first quarter. The economic uncertainty does not appear to be receding any time soon, so it appears that the markets will continue to be in for a rough ride for the foreseeable future.
With the return of significant market volatility, now is good time to have access to all of the essential resources available on our sites and in our publications. We have seen this movie before, and we have all of the resources that you need to navigate the volatile market environment. Here are just a few of the resources that we have archived on our sites for your consideration in today’s environment:
The memo goes on to provide several best practices for AI governance including:
– “Establishing clear data provenance and governance practices.
– Designating cross-functional AI leads within the organization (legal, IT, HR, etc.).
– Providing employee-level training on AI tools and acceptable uses.
– Updating licensing agreements to reflect new transparency requirements.
– Maintaining awareness of evolving federal and state-level regulations.”
Good AI governance isn’t always easy, but through utilizing best practices companies can capitalize on AI and minimize risk. One key point is that AI can be applied very differently across a company. These differing use cases present unique governance challenges and underlie the need for transparency at every level. Companies should also be clear in their policies about what constitutes “AI use.” Sales and marketing may use AI in the context of pitching ideas or writing copy, and research and development may use machine learning AI systems to analyze data or develop new products. Good AI governance requires leadership to understand all AI deployments within a company and the unique challenges associated with each.
If you have not checked out all of the useful information available on the AI Counsel Blog, I encourage you to do so today. If you do not have access to the blog, please sign up online or email sales@ccrcorp.com.
Over the course of just the past month, we have observed the SEC pivot to an agenda that is particularly focused on capital raising matters. In the past month, the SEC Staff has issued the following guidance:
– On March 3, the Staff enhanced the accommodations available to companies seeking confidential review of draft registration statements;
– On March 12, the Staff issued new guidance and an interpretive letter addressing what the Staff views as an acceptable process for verifying “accredited investor” status in a Rule 506(c) offering; and
– On March 20, the Staff revised its position on the information that is required to be included in a non-automatically effective registration statement on Form S-3 filed during the period between when a company files its Form 10-K and its proxy statement, permitting registration statements to be declared effective during that period.
This Staff guidance is no doubt an opening salvo in efforts to be undertaken by the Commission and Congress to encourage capital raising by both public and private companies. The developments make it a particularly good time to attend the SEC’s 44th Annual Small Business Forum, which is taking place next Thursday, April 10 at the SEC’s headquarters in Washington DC. Those who are not able to attend in person will be able to tune into a webcast of the program. The full agenda for the program is now available and features a wide range of topics relevant to capital-raising by smaller companies. As Meredith recently noted, the SEC is asking the public to register in advance and submit suggestions ahead of the Forum.
I am honored to be speaking at the program this year, on a panel titled: “Small Cap Playbook: Entering and Advancing in the Public Market Arena.” It promises to be an interesting discussion of the opportunities and challenges faced by smaller companies seeking to raise capital in public markets. I hope that you can join me at this year’s program!
The paper draws insights from a recent survey and ongoing engagement with thousands of Nasdaq-listed companies and advances critical policy proposals to strengthen the public markets and retain the U.S. capital markets’ status as the global standard for economic innovation and wealth creation.
Over the past 25 years, the number of public companies listed on U.S. exchanges has declined 36%, from 7,000 to 4,500, while the number of private equity-backed companies in the U.S. has increased approximately 475%, from 2,000 to 11,500. One of key drivers behind this trend is the increased burden associated with public company status. The decline in the number of public-traded companies is harmful to the overall strength, liquidity, and depth of the U.S. markets. The unjustifiable increase in the burdens and costs that must be borne as the price for the privilege of accessing U.S. public markets has needlessly hampered U.S. companies’ growth, scale, and competitiveness in the global economy. Importantly, it has also limited Main Street Americans from benefiting from the value and wealth creation potential from American innovation.
Nasdaq’s paper recommends pragmatic and results-oriented regulatory changes to restore balance between oversight and accessibility in the public markets. The analysis includes views from companies and argues for proxy process modernization, scaled disclosure with renewed emphasis on materiality, common sense litigation reform, and increased transparency into short selling.
Several of the key policy initiatives addressed in the paper include:
– Proxy Process Modernization, including improving proxy plumbing, common sense proxy access and shareholder proposal reforms, and proxy advisory reform.
– Scaled Disclosure Relief, including anchoring disclosure requirements in materiality, streamlining quarterly reporting practices, and updating scaled disclosure for emerging growth companies, accelerated filers, smaller reporting companies and well-known seasoned issuers.
– Leveling the Playing Field with Smart Regulation, including ensuring audits remain relevant and affordable, updating short selling disclosures, and reining in unproductive litigation practices.
In a Q&A with John Zecca, Nasdaq’s Executive Vice President and Global Chief Legal, Risk, and Regulatory Officer, that was released at the same time as the paper, John was asked “What are the risks if the advice in the report is not taken?” He replied:
I think the biggest risk is that companies skip the public markets, and that will impact the ability of mainstream investors to save for retirement and meet their needs. They’ll have fewer investment options. On top of that, the U.S. economy as a whole will be impacted if there are fewer public companies, generating fewer jobs. And the cutting-edge companies of tomorrow that need to raise capital may not have that capital and may struggle.
Without these modernization reforms, we will lose ground to other countries. If you look around the world now, the U.S. markets are the envy of the world: When I travel, I hear repeatedly that others are looking to emulate the U.S. model. And these other countries are not standing still: They are deregulating and changing their listing rules to try to draw in more companies. So, if the U.S. doesn’t act now, then we are at risk of falling behind in the global capital race.
That’s the core risk, but the good news is that U.S. policymakers understand this, and they see these concerns. The new administration is very focused on improving the public company model.
That’s why we believe this report outlines the right policy ideas at the right time.
Capital-raising is certainly not the only thing on the SEC’s agenda. It is likely that another area of attention will be the rules that the SEC has proposed or adopted over the course of the past four years. Yesterday, members of the House Committee on Financial Services announced that they had sent letters to various agencies “requesting the rescission, modification, or re-proposal of specific Biden-Harris Administration actions.”
The letter to Acting SEC Chairman Uyeda calls on the SEC to withdraw several final and proposed rules, with the members noting in the press release:
These proposals and final rules have not only made our capital markets less attractive to companies considering going public but also have imposed undue burdens on existing public companies. As global economic competition escalates, it is incumbent upon the Commission to abandon misguided rulemakings and work to maintain our capital markets’ status as the envy of the world.
The letter specifies a list of fourteen adopted and proposed rules to be withdrawn, including:
1. Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure;
2. Short Position and Short Activity Reporting by Institutional Investment Managers;
3. Reporting of Securities Loans;
4. Pay Versus Performance;
5. Investment Company Names;
6. Form N-PORT and Form N-CEN Reporting; Guidance on Open-End Fund Liquidity Risk Management Programs;
7. Conflicts of Interest Associated with the Use of Predictive Data Analytics by Broker Dealers and Investment Advisers;
8. Open-End Fund Liquidity Risk Management Programs and Swing Pricing;
9. Regulation Best Execution;
10. Order Competition;
11. Position Reporting of Large Security-Based Swap Positions;
12. Regulation Systems Compliance and Integrity;
13. Outsourcing by Investment Advisers; and
14. Enhanced Disclosures by Certain Investment Advisers and Investment Companies about Environmental, Social, and Governance Investment Practices.
It looks like Corp Fin would get off pretty easy with this list, with only two Corp Fin rules highlighted for withdrawal. Too bad EDGAR Next did not make the list!
While there have been a few rumors floating around about DOGE working at the SEC over the past two months, it now appears that DOGE contacted the SEC last week to initiate an interaction with the SEC Staff. As this Reuters article notes, the Staff was informed that DOGE has indeed arrived on the scene:
SEC staff were informed that the DOGE task force had contacted the regulator, and that they would be treated as staff for the purposes of network, system and data access. The SEC is establishing a liaison team with the “intent to partner” with DOGE, the email said…
“Our intent will be to partner with the DOGE representatives and cooperate with their request following normal processes for ethics requirements, IT security or system training, and establishing their need to know before granting access to restricted systems and data,” the staff email stated.
A spokesperson for the DOGE task force referred questions to the SEC, whose spokesperson confirmed it was beginning to onboard DOGE members. But the SEC declined to comment on what role, if any, Musk would play at the agency as part of DOGE or what data access the team would have. Musk did not immediately respond to a request for comment.
The article notes that the arrival of DOGE personnel at the agency comes at a time when the SEC is already undergoing staffing changes, with over 600 people agreeing to leave the agency under the resignation and retirement programs that have been offered over the past two months.
During his confirmation hearing, SEC Chairman nominee Paul Atkins noted that he would be definitely willing to work on efficiencies at the SEC if confirmed.
The arrival of DOGE personnel at 100 F Street is not likely to improve the morale around the SEC, where the frequent departures and an overall sense of chaos is undoubtedly contributing to a great deal of distraction and uncertainty for the Staff. I have a great deal of confidence in the talented SEC Staff members who will most certainly be able to continue the agency’s mission amidst this current storm. We all may need to have some patience as the SEC adjusts to a “new normal” over the course of the next weeks and months.
I fully realize that if I had posted a blog with this title and content one year ago, it would have easily been identified as an April Fool’s Day joke – but this is our reality today, and certainly no joking matter.
The efforts that have been made to reduce the federal workforce over the past two months have prompted me to reflect on my time in public service and how important that time was to me as a lawyer and as a person. My conclusion is that I would not be who I am today without the unique experience of working in the federal government.
As I have discussed before, I grew up with only a very cursory understanding of the workings of the federal government and never really envisioned being a part of it. A series of random events and happenstance, including the impression left on my by the movie Wall Street, led me to law school with the express purpose of getting a job at the SEC. And thanks to an internship opportunity that opened up in the SEC’s Office of Administrative Law Judges, I got my shot at public service and tried to make the most of it.
What struck me most about my time in the federal government were all of the incredible people that I encountered there. During my two tours at the SEC, I met so many brilliant and genuinely nice people at the agency, many of whom I am still in touch with today. There was something about working hard together toward a well-defined mission that created a particular esprit de corp that I have never experienced in any other job. While there were inevitably bad times that came along with the good times, it was always easier to navigate those bad times with such a talented and committed group around you. And no matter what we were working on, we always stayed focused on the SEC’s mission, which gave all of us a sense of purpose in our daily work.
When I left the SEC the first time for private practice, I really struggled with the loss of my identity as a public servant. It was very difficult for me to transition out of the federal workforce, and I did not find the work in private practice to be as fulfilling as what I had experienced at the SEC. I also missed the people that I had worked with terribly, and I yearned for that sense of mission that came with public service. These feelings ultimately led to my return to the Division of Corporation Finance at the SEC, with a broader perspective on how the world works and a renewed interest in “doing good” in the federal government.
As I look back on my experience in the federal workforce, I realize that my “SEC Era” really reshaped my views on the role that the federal government plays in our lives and the important work that is being done in Washington and across the country by federal workers. While there are undoubtedly instances of waste, fraud and abuse in the government, we should definitely not paint with too broad of a brush when criticizing the federal workforce. At the SEC and other federal departments and agencies, there are hard-working, dedicated people that are working every day to make our lives better, safer and more productive, and they deserve our gratitude and respect. I would like to thank each and every one of them for their service to our country.
Join us tomorrow at 2:00 pm Eastern for our “Conduct of the Annual Meeting” webcast to hear Chevron’s Mary Francis, The Shareholder Service Optimizer’s Carl Hagberg and Peder Hagberg, Lucky Strike Entertainment’s Matthew Kane and Alliance Advisors’ Jason Vinick discuss the latest developments and provide practice pointers that will help you prepare for your annual meeting. This annual webcast is always a great way to get ready for the annual meeting season!
Members of this site are able to attend this critical webcast at no charge. If you’re not yet a member, try a no-risk trial now. 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. The webcast cost for non-members is $595. You can sign up by credit card online. If you need assistance, send us an email at info@ccrcorp.com – or call us at 800.737.1271.
We will apply for CLE credit in all applicable states (with the exception of SC and NE which require advance notice) for this 60-minute webcast. You must submit your state and license number prior to or during the program using this form. 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.
As John noted last week, the Senate Banking Committee held a confirmation hearing on the nomination of Paul Atkins to serve as SEC Chairman on Thursday. The nominee’s written testimony noted:
My time in public service and in the private sector has allowed me to see first-hand how regulations, including those of the SEC, affect markets and investors. They can stoke innovation, facilitate investment goals, and create opportunities – or burdens – on businesses’ ability to compete and serve their customers.
Implementation of regulations, therefore, is crucial; it is one thing to write a regulation, quite another for it to achieve its intended goal. Regulation ideally should be smart, effective, and appropriately tailored within the confines of the regulator’s statutory authority. In short, clear rules of the road benefit all market participants.
Unfortunately, lawyers do not speak the same language as businesspeople, or compliance professionals, or IT staff. It takes knowledge and experience to translate and anticipate issues that inevitably arise among these various professionals tasked with implementing regulations.
The breadth and depth of my combined experiences over the decades will inform my approach if I am fortunate to be confirmed by the Senate. It takes industry experience and focused application to ensure that customers and investors of financial-services firms benefit from efficient, effective, and well-designed regulation. Our goal at the SEC should be to facilitate those efforts, analyze their effectiveness, and use our enforcement power to cure and rectify wayward actions.
Atkins went on to note:
It is time for the SEC to return to its core mission that Congress set out for it: investor protection; fair, orderly, and efficient markets; and capital formation. I look forward to an ongoing, constructive dialogue with this Committee and the Congress at large, as we work together to foster a dynamic, innovative, and rapidly evolving financial system, where the United States has the opportunity to maintain and build on its global leadership.
As this POLITICO article notes, Senator Elizabeth Warren pressed Atkins on his plans to divest from his consulting firm, Potomak Global Partners. The exchange was reported as follows:
“Will you disclose who the buyers are and how much they pay, so that we can make certain that these are not people who are just buying access to the future chair of the SEC?” Warren said during Atkins’ confirmation hearing.
Atkins promptly responded: “Sen. Warren, I have abided by the Office of Government Ethics’ [process].”
“So that is a ‘no’ — you’re not going to tell us who you sell it to and how much money you get,” Warren cut in. “Some people might call that a pre-bribe.”
Among many other topics, Atkins addressed the possibility of eliminating the PCAOB (noting that only Congress could eliminate the PCAOB or combine it with the SEC), defended his tenure while previously serving as a Commissioner of the SEC, clarified the extent of his involvement in the Project 2025 recommendations concerning financial markets, and noted that digital assets regulation will be a top priority.
As this Crypto.news piece notes, the Committee did not vote on Atkins and the other nominees following Thursday’s hearing (as is often the case), but instead requested that the nominees submit written answers to questions from members of the Committee ahead of to-be-scheduled markup vote.
Financial regulators should take a technology-neutral approach to regulation. I have been concerned with some recent Commission efforts that might effectively place unnecessary barriers on the use of new technology. We should avoid an overly prescriptive approach that can lead to quickly outdated, duplicative rules, a “check the box” approach to compliance, and impediments to innovation. To the extent that advances in technology, such as AI, create potential gaps in our regulatory structure or point to the need for additional guidance, it is the Commission’s responsibility to address those gaps or provide guidance in ways that encourage innovation while protecting investors. The Commission must be mindful of its statutory authority and prioritize effective and cost-efficient regulations in this space.
As with other financial innovations, the use of AI also may bring risks and challenges. AI is a broad term, but risks from the use of AI technologies may largely depend on the specifics of the technology, use case, and deployment at issue. As we evaluate potential risks and challenges arising from the use of AI, we should focus on obtaining relevant data and evidence. To foster a commonsense and reasoned approach to AI and its use in financial markets and services, regulators should be engaging with innovators, technology providers, market participants, and others.
Commissioner Hester Peirce’s remarks posed some questions for consideration during the Roundtable:
Today’s roundtable is a great step toward a better understanding of artificial intelligence, its role in the financial industry, and how to think about regulating it. A better understanding can dispel unfounded fears and enable us to focus on real problems and to identify tailored solutions. To that end, I have several questions that the panelists may wish to consider:
– What areas of the securities industry are likely to be most transformed by AI in the next five years? Should we do anything as a regulator to prepare for these changes?
– Do firms need guidance from the Commission about their usage of artificial intelligence technology, and how should the Commission deliver such guidance?
– Given the rapid pace of technological evolution in this space, how do we ensure that any potential Commission guidance or regulations related to the use of artificial intelligence do not quickly become outdated?
– Relatedly, how do we ensure that our actions do not stifle innovation and remain technologically agnostic?
– Finally, how do we avoid overreacting to the most egregious cases of artificial intelligence misuse and letting it define our rules and guidance?
In her remarks, Commissioner Crenshaw took credit for the idea of this Roundtable, and also highlighted specific areas that needed to be addressed in the course of the discussion:
Now, whenever I speak with members of financial services community about AI, I ask them – how do you define AI and how are you using it? There is one constant. No one is on the same page. In many ways, when we speak about these technologies, I think we have a tendency to talk past each other.
So, let’s reset. And let’s answer some very basic but important questions.
– What is artificial intelligence? How do we achieve greater precision in our terminology and definitions?
– How is AI being deployed in the financial services industry today? And how will it be used in the future?
– I ask this with respect to all industry participants – how is it used by broker dealers, investment advisers, issuers, intermediaries, markets, investors and other stakeholders?
– Are the most common uses investor-facing, related to investing or the deployment of capital, or are they in pursuit of back-office efficiencies? Is AI being deployed by companies or by their service providers?
– What governance mechanisms are in place to oversee AI systems – especially those systems that may employ “black box” algorithms, where it’s not clear how inputs are weighed or outputs derived? What do those governance mechanisms look like? And is AI being used at board or governance levels?
– And what oversight is applied to ensure that legal and regulatory responsibilities are met – both fiduciary and professional obligations, as well as the relevant rules governing trading mechanics or back-office functions?
– What disclosures are being made around AI uses and risk, and are they consistent and sufficient?
– Are there areas where investors are left vulnerable by the use of AI – either susceptible to fraud or systematic disadvantage?
– Are there systemic market or volatility risks associated with the use of AI that we need to be focused on?
AI appears to represent a sea-change in technology. It is powerful and persistent. It will drive change. The question is – are we prepared for it? I hope that today’s session is an important step for preparedness at the SEC.
