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SEC Releases - 3

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Release No. 33-10829: Temporary Amendments to Regulation Crowdfunding; Extension NEW!

Release No. 33-10825: Modernization of Regulation S-K Items 101, 103, and 105 NEW!

Release No. 33-10824: Amending the “Accredited Investor” Definition NEW!

Release No. 34-89618: Rescission of Effective-Upon-Filing Procedure for NMS Plan Fee Amendments and Modified Procedures for Proposed NMS Plans and Plan Amendments NEW!

Release No. 34-89394: Covered Broker-Dealer Provisions under Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act 

Release No. 34-89372: Exemptions from the Proxy Rules for Proxy Voting Advice 

Release No. 33-10765A: Updated Disclosure Requirements and Summary Prospectus for Variable Annuity and Variable Life Insurance Contracts; Correction

Release No. BHCA-9: Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds

Release No. 33-10781: Temporary Amendments to Regulation Crowdfunding 

Articles

Release No. 33-10829: Temporary Amendments to Regulation Crowdfunding; Extension

Summary - The SEC is extending the effective date and applicability dates of our temporary final rules under Regulation Crowdfunding to facilitate capital formation for small businesses impacted by the COVID-19 pandemic. The temporary final rules are intended to “expedite the offering process for smaller, previously established companies directly or indirectly affected by COVID-19 that are seeking to meet their funding needs through the offer and sale of securities” made pursuant to Regulation Crowdfunding.
The temporary final rules are designed to facilitate this offering process by providing tailored, conditional relief from certain requirements of Regulation Crowdfunding relating to the timing of the offering and the availability of financial statements required to be included in issuers’ offering materials while retaining appropriate investor protections.
The amendments in this rule are effective from August 31, 2020 through September 1, 2021. The expiration date for the temporary final rules previously published May 7, 2020 is extended from March 1, 2021, to September 1, 2021. The temporary final rules apply to securities offerings initiated under Regulation Crowdfunding between May 4, 2020, and February 28, 2021.
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© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 33-10825: Modernization of Regulation S-K Items 101, 103, and 105

Summary - The SEC announced that it voted to adopt amendments to modernize the description of business (Item 101), legal proceedings (Item 103), and risk factor disclosures (Item 105) that registrants are required to make pursuant to Regulation S-K. These disclosure requirements have not undergone significant revisions in over 30 years. The amendments the Commission is adopting today update these items to reflect the many changes in our capital markets and the domestic and global economy in recent decades.

Many of the amendments reflect the Commission's long-standing commitment to a principles-based, registrant-specific approach to disclosure. These disclosure requirements, while prescriptive in some respects, are rooted in materiality and are designed to facilitate an understanding of each registrant's business, financial condition, and prospects. The rules are designed for this information to be presented on a basis consistent with the lens that management and the board of directors use to manage and assess the registrant's performance. The modernization of Items 101, 103, and 105 is intended to elicit improved disclosures, tailored to reflect registrants' particular circumstances, which are designed will improve disclosures for investors and add efficiencies to the compliance efforts of registrants. The amendments are also intended to improve the readability of disclosure documents, as well as discourage repetition and reduce the disclosure of information that is not material.

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© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 33-10824: Amending the “Accredited Investor” Definition

Summary - The SEC adopted amendments to the “accredited investor” definition, one of the principal tests for determining who is eligible to participate in our private capital markets. Historically, individual investors who do not meet specific income or net worth tests, regardless of their financial sophistication, have been denied the opportunity to invest in our multifaceted and vast private markets. The amendments update and improve the definition to more effectively identify institutional and individual investors that have the knowledge and expertise to participate in those markets.

The amendments allow investors to qualify as accredited investors based on defined measures of professional knowledge, experience or certifications in addition to the existing tests for income or net worth. The amendments also expand the list of entities that may qualify as accredited investors, including by allowing any entity that meets an investments test to qualify.

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© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 34-89618: Rescission of Effective-Upon-Filing Procedure for NMS Plan Fee Amendments and Modified Procedures for Proposed NMS Plans and Plan Amendments

Summary - The SEC rescinded a rule exception that allowed a proposed national market system (NMS) plan fee amendment to become effective upon filing, prior to review and comment by investors and other market participants. According to the SEC, the new procedures require public notice of any proposed NMS plan fee amendment, an opportunity for public comment, and SEC approval by order before a new or changed fee can be charged. The SEC also modified the procedures for review of all proposed NMS plans and plan amendments, including fee amendments, to specify timelines for SEC action for each step of the process, adding certainty to the process for NMS plan participants.

The amendments will be effective 30 days after publication in the Federal Register.

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© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 34-89394: Covered Broker-Dealer Provisions under Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act

Summary - The SEC and the Federal Deposit Insurance Corporation have adopted a final rule required by the Dodd-Frank Act clarifying and implementing provisions relating to the orderly liquidation of certain brokers or dealers (covered broker-dealers) in the event the FDIC is appointed receiver under Title II of the Dodd-Frank Act. The FDIC and SEC developed the final rule in consultation with the Securities Investor Protection Corporation (SIPC).

The SEC indicates that by statute, “the orderly liquidation of a covered broker-dealer must be accomplished in a manner that ensures that customers of the covered broker-dealer receive payments or property at least as beneficial to them as would have been the case had the covered broker-dealer been liquidated under the Securities Investor Protection Act of 1970 (SIPA).”

Among other things, the final rule clarifies how the relevant provisions of SIPA would be incorporated into a Title II proceeding. Upon the appointment of the FDIC as receiver, the FDIC would appoint SIPC to act as trustee for the broker-dealer. SIPC, as trustee, would determine and satisfy customer claims in the same manner as it would in a proceeding under SIPA. The treatment of the covered broker-dealer’s qualified financial contracts would be governed in accordance with Title II.

In addition, the final rule describes the claims process applicable to customers and other creditors of a covered broker-dealer and clarifies the FDIC’s powers as receiver with respect to the transfer of assets of a covered broker-dealer to a bridge broker-dealer.

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© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 34-89372: Exemptions from the Proxy Rules for Proxy Voting Advice

Summary - The SEC adopted amendments to its rules governing proxy solicitations designed to ensure that clients of proxy voting advice businesses have reasonable and timely access to more transparent, accurate and complete information on which to make voting decisions. According to the SEC, the amendments “aim to facilitate the ability of those who use proxy voting advice—investors and others who vote on investors’ behalf—to make informed voting decisions without imposing undue costs or delays that could adversely affect the timely provision of proxy voting advice.”

The amendments condition the availability of two exemptions from certain of the federal proxy rules often used by proxy voting advice businesses on compliance with tailored and comprehensive conflicts of interest disclosure requirements. The exemptions are also conditioned on two principles-based requirements designed to ensure that:

  • Registrants that are the subject of proxy voting advice have such advice made available to them in a timely manner; and
  • Clients of proxy voting advice businesses are provided with an efficient and timely means of becoming aware of any written responses by registrants to proxy voting advice.

The SEC indicates that these conditions reflect certain observed market practices and are intended to ensure that proxy voting advice clients have access to information that is more transparent, accurate and complete.

In addition, the amendments codify the SEC’s longstanding view that proxy voting advice generally constitutes a solicitation under the proxy rules and makes clear that the failure to disclose material information about proxy voting advice may constitute a potential violation of the antifraud provision of the proxy rules.

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© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 33-10765A: Updated Disclosure Requirements and Summary Prospectus for Variable Annuity and Variable Life Insurance Contracts; Correction

Summary - The SEC has published technical corrections to amendments to disclosure requirements and summary prospectus for variable annuity and variable life insurance contracts previously adopted in March 2020.

Specifically, this document amends Instructions 15(d) and 18(b) published in the previous release. Instruction 15(d) is amended to redesignate Note 2 to rule 405 of Regulation S-T as Note 1 to rule 405 of Regulation S-T, and Instruction 18(b) is amended to replace the reference to Item 3 of Form N-14 with a reference to Item 5(c) of Form N-14.

These technical corrections are effective July 1, 2020.

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© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. BHCA-9: Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds

Summary - The SEC and four other federal regulatory agencies finalized a rule modifying the Volcker rule’s prohibition on banking entities investing in or sponsoring hedge funds or private equity funds—known as covered funds. The final rule is broadly similar to the proposed rule from January 2020.

The Volcker rule generally prohibits banking entities from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a hedge fund or private equity fund.

Like the proposal, the final rule modifies three areas of the rule by:

  • Streamlining the covered funds portion of rule;
  • Addressing the extraterritorial treatment of certain foreign funds; and
  • Permitting banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker rule was intended to address.

The rule will be effective on October 1.

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© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 33-10781: Temporary Amendments to Regulation Crowdfunding

Summary - The SEC announced that it is providing temporary, conditional relief for established smaller companies affected by COVID-19 that may look to meet their urgent funding needs through a Regulation Crowdfunding offering. According to the SEC, these actions will expedite the offering process for eligible companies by providing relief from certain rules with respect to the timing of a company's offering and the financial statements required. To take advantage of the temporary rules, a company must meet enhanced eligibility requirements and provide clear, prominent disclosure to investors about its reliance on the relief. The temporary rules are intended to expedite the offering process for smaller, previously established companies directly or indirectly affected by COVID-19 that are seeking to meet their funding needs through the offer and sale of securities pursuant to Regulation Crowdfunding.

The temporary rules provide flexibility for issuers that meet certain eligibility criteria to assess interest in a Regulation Crowdfunding offering prior to preparation of full offering materials, and then once launched, to close such an offering and have access to funds sooner than would be possible in the absence of the temporary relief. The temporary rules also provide an exemption from certain financial statement review requirements for issuers offering more than $107,000 but not more than $250,000 in securities in reliance on Regulation Crowdfunding within a 12-month period.

The relief will apply to offerings launched between the effective date of the temporary rules (publication in the Federal Register) and August 31, 2020.

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© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.